ECO105 Finals

Production

• It is the conversion of inputs to outputs

• Economic process that uses resources to create a commodity that is suitable for exchange

Factors of Production

resources that contribute to the production of a good or service

Fixed Inputs

Resources that are used at a constant amount in the production of a commodity

Variable Inputs

Resources that can change in quantity depending on the level of output being produced

Production Function

• It exemplifies the relationship between production’s outputs and inputs

• It refers to the physical relationship between the inputs or resources of a firm and their output of goods and services at a given period of time, ceteris paribus

Inputs (Ip)

Production (P) equals to?

P = f(Ip)

formula for Production

Fixed Inputs and Variable Inputs

Inputs are?

f (Land, Labor, Capital)

Productions are?

Total Product (TP)

output / total quantity of goods and services produced within a specific period of time

Average Product (AP)

measures the total output per unit of input used

Marginal Product

additional product produced from using additional unit of a variable input

Total Costs (TC)

full cost or producing any level of output

Variable Cost

• refers to the cost that changes as the amount of output produced is changed.

• Cost that increases proportionally, because u decided to increase ur output

Fixed Cost

• is more commonly referred to as "sunk cost" or "overhead cost.

• means that this type of cost will never change, even if u increase ur output

• is independent of the level of output produced

• Graphically, depicted as a horizontal line.

total variable costs are zero.

If no output is produced

greater the TVC

The larger the output,

Total Variable Cost (TVC)

total amount of cost increases with the level of output

Total Fixed Cost (TFC)

A type of cost that never changes, regardless of the level of output.

AFC and TP (Downward Sloping Curve)

• Inversely related

• As TP increases, AFC decreases

• The more u produce(TP) , the less your fixed costs seem to be valued.

TP and AVC (Downward sloping AVC)

• Increase in TP, Decrease in AVC

• U have the presence of versatile resources

MC and AVC (Upward sloping curve)

• The more total product u produce, the more cost

• MC crosses or intersects the AVC at its lowest point

1. Perfect Competition

2. Monopolistic Competition

3. Monopoly

4. Oligopoly

Forms of Market Structure (FMS)

• Firms control the entire supply of raw materials

• Ownership ofa patent or copyright

• Government-owned companies or franchises

Causes of Monopoly

• The government creates barriers

• Example: ammunition business, geothermal plants,

• Required a massive capital investment

How Monopolies Make Production & Pricing Decisions

Strategic Behavior

What’s best for Firm A depends on what Firm B and other companies undertake

Dominant Strategy

a strategy that produces the best results no matter what strategy the opposing team follow

1. Conventions

2. Price Leadership

3. Cartels

4. Collusion

Other Strategic Behaviors of Oligopoly