3

AP MicroEcon

Production

Converting inputs into outputs.

Diminishing Marginal Returns

As additional variable resources are added to fixed resources, the additional output produced from each additional worker will eventually fall.

Marginal Product (MP)

The additional output generated by additional inputs (workers).

Total Physical Product (TP)

Total output or quantity produced.

Average Product (AP)

The output per unit of input; calculated as Total Product divided by units of labor.

Fixed Resources

Resources that don’t change with the quantity produced, such as tables, scissors, and staplers.

Variable Resources

Resources that change with the quantity produced, such as workers, paper, and staples.

Law of Diminishing Marginal Returns

When adding more of a variable resource to fixed resources, the output will eventually increase at a decreasing rate.

Inputs

The resources used to make outputs.

Outputs

The products made by converting inputs.

Stages of Returns

The three phases in production characterized by increasing, decreasing, and negative marginal returns.

Stage I: Increasing Marginal Returns

MP is rising, and total product is increasing at an increasing rate due to specialization.

Stage II: Decreasing Marginal Returns

MP is falling, and total product is increasing at a decreasing rate as fixed resources limit output.

Stage III: Negative Marginal Returns

MP is negative, and total product is decreasing as workers interfere with each other.

Marginal Returns

The change in output as a result of adding one more input (worker).

Manager's Responsibilities

To hire workers and oversee production activities.

Inspector's Responsibilities

To check that each product is made to specifications.

Production Analysis

Understanding how changes in input (like hiring more workers) affect output.

Basketball Analogy for Diminishing Returns

Discusses how increased player output can lead to diminishing, stable, or negative returns based on player dynamics.