Part 1 Flashcards
Inputs/factors of production
Resources, land, labor, and capital used by firms to produce output
Costs
The wages and rents firms must pay in order to purchase land, labor, and capital needed to manufacture goods
Outputs
Finished goods and services firms produce to maximize profit
Product market
Where outputs go to be sold to consumers and generate revenue for a firm
Total Product
Total quantity of output produced by a firm
Average Product
Quantity of total output produced per unit of input
Average product formula
Total product/number of inputs
Marginal Product
Quantity of total output produced by each additional unit of input used in the production process
Marginal product formula
Change in total product/change in outputs used
Law of diminishing returns
As variable resources are added to fixed resources during the production process, additional output will eventually fall
Increasing Marginal Returns
Each additional worker is more productive than the previous one (the firm increases at an increasing rate)
Decreasing Marginal Return
Each additional worker is less productive than the previous one, because each worker finds it harder to specialize in their task
Negative Marginal Returns
Each additional worker gets in the way of production; we see negative marginal returns
relationship between marginal and total product
When the marginal product curve is rising, te total product curve is rising at an increasing rate.
When the marginal product curve reaches its apex, the total product curve stops rising at an increasing rate.
When the marginal product curve begins to fall, the total product curve begins to rise at a slower rate
By the time the marginal product curve hits 0, the total product curve reaches its apex
Only when the marginal product curve becomes negative does the total product curve begin to fall
Comparative Advantage
Circumstance where a nation/firm/individual has a lower opportunity cost than another entity when producing the same amount of the same product.
