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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.
Note 
Flashcard (46)