Supply Curve: Inputs and Costs Flashcards
Define production function
The relationship between the quantity of inputs a firm uses and the quantity of output it produces
What is a fixed input?
An input whose quantity is fixed for a period and cannot be varied
What is a variable input?
An input whose quantity the firm can vary at any time
Regarding inputs, what happens in the short run?
At least one of the inputs fixed
What is marginal product?
The change in output resulting from a one unit increase in the amount of labour input
What is the marginal product of labour and how is it calculated
The increase in the quantity of output when the quantity of input is increased by one unit
Change in quantity of output/change in labour
Define fixed cost
A cost that doesn’t depend on the quantity of output produced (cost of the fixed input)
Define variable cost
A cost that depends on the quantity of output produced (cost of the variable input)
How is total cost calculated?
Fixed Cost + Variable Cost
Define marginal cost
The change in total cost generated by one additional unit of output
How is marginal cost calculated?
Change in total cost/change in quantity
How is average total cost calculated?
Total Cost/Quantity
How is average fixed cost calculated?
Fixed Cost/Quantity
How is variable cost calculated?
Variable Cost/Quantity
What two effects can increasing output have om ATC?
- The spreading effect - the larger the output, the more output over which fixed cost is spread, leading to a lower average fixed cost
- The diminishing returns effect - the larger the output, the more variable input required to produce additional units, which leads to higher variable cost
