U3 M54 Production Function + Simulation Slides

Total Physical Product (TP)?

total output or quantity produced

Marginal Product (MP)

The additional output generated by additional inputs

What is the difference between Fixed Resources and Variable Resources?

Fixed Resources do not change with the quantity produced, while Variable Resources do change with the quantity produced.

What does the Law of Diminishing Marginal Returns state?

It states that as variable resources are added to fixed resources, the additional output produced from each additional worker will eventually fall.

Long run

The period of time long enough for a firm to change the quantities of all resources employed

Short run vs. Long run: In which time frame is the plant capacity fixed?

Short run.

What are the three stages of Marginal Returns?

Increasing MP (TP increases), Decreasing MP (TP increases), Negative MP (TP decreases).

Fixed Resources

Resources that do not change with the quantity produced

What must firms do to earn profit?

Firms must make outputs.