Economics: Supply Curve and Production Functions

Flashcards covering key concepts of production functions, costs, and economic terms.

Production Function

The relationship between the quantity of inputs a firm uses and the quantity of output produced.

Fixed Input

An input whose quantity is fixed and cannot be varied.

Variable Input

An input whose quantity the firm can vary.

Short Run

The time period in which at least one input is fixed.

Long Run

The time period in which all inputs can be varied.

Total Product Curve

Demonstrates how the quantity of output adjusts with changes in the variable input.

Marginal Product of Labor (MPL)

The additional quantity of output that is produced by using one more unit of labor.

Diminishing Returns to an Input

Occurs when an increase in the quantity of that input leads to a decline in the marginal product of that input.

Total Cost (TC)

The sum of fixed cost (FC) and variable cost (VC) of producing a quantity of output.

Marginal Cost

The change in total cost generated by one additional unit of output.

Average Cost

Total cost per unit of output, often referred to as average total cost.

Spreading Effect

As fixed costs are spread across units, larger output levels result in lower average fixed costs.

Minimum Cost Output

The level of output where average total cost is equal to marginal cost.

Long-Run Average Total Cost Curve

Shows the relationship between output and average total cost when inputs have been chosen to minimize average total cost.