Production & Resource Use - AMT 1035 FALL 2025

Flashcards covering key concepts from the 'Production & Resource Use' lecture, including stages of production, cost relationships, revenue concepts, profit maximization, and input relationships.

Stage I of Production

The stage where average physical product (yield) is increasing.

Stage II of Production

The stage where marginal physical product falls below average physical product but is still positive. This is considered the rational stage for operation.

Stage III of Production

The stage where marginal physical product goes negative, indicating that total output is falling. This is considered an irrational stage of production.

Marginal Physical Product (MPP)

The change in total output resulting from adding one more unit of a variable input.

Average Physical Product (APP)

Total output divided by the total units of a variable input.

Economic Dimension (of Production)

The aspect of production that accounts for the price of the product and the cost of inputs (Cost of Goods Sold).

Marginal Cost (MC)

The change in total cost divided by the change in output (ΔTotal Cost ÷ ΔOutput).

Average Variable Cost (AVC)

Total variable cost divided by output (Total Variable Cost ÷ Output).

Average Total Cost (ATC)

Total cost divided by output (Total Cost ÷ Output).

Total Output (TPP)

The total quantity of goods or services produced.

Total Fixed Cost (TFC)

Costs that remain constant regardless of the level of production in the short run.

Average Fixed Cost (AFC)

Total fixed cost divided by output (Total Fixed Cost ÷ Output).

Total Variable Cost (TVC)

Costs that vary with the level of production.

Total Cost (TC)

The sum of total fixed cost and total variable cost (TFC + TVC).

Marginal Revenue (MR)

The additional revenue generated from selling one more unit of a product.

Average Revenue (AR)

Total revenue divided by output.

Perfect Competition

A market condition where the price of the product (P) equals marginal revenue (MR) and average revenue (AR).

Profit Maximization (Output)

The level of output where marginal revenue equals marginal cost (MR = MC).

Economic Profit

The difference between total revenue and total costs, representing the overall profitability of the firm.

Break-Even Point

The level of output where a firm earns zero economic profit, occurring when the product price equals average total cost (P = ATC).

Shutdown Point

The level of output below which a firm would cease production in the short run because the price falls below average variable cost (P < AVC).

Firm's Supply Curve

The portion of the marginal cost (MC) curve that lies above the average variable cost (AVC) curve.

Marginal Value Product (MVP)

The additional revenue generated by using one more unit of a variable input, calculated as Marginal Physical Product × Price.

Marginal Input Cost (MIC)

The additional cost incurred from using one more unit of a variable input, such as the wage rate for labor.

Profit Maximization (Input)

The point where the marginal value product equals the marginal input cost (MVP = MIC).

Marginal Net Benefit

The difference between Marginal Value Product and Marginal Input Cost (MVP - MIC).

Cumulative Net Benefit

The sum of successive marginal net benefits, which is maximized when MVP = MIC.

OMAX

The profit-maximizing level of output.

LMAX

The profit-maximizing level of a variable input, such as labor.

Factors of Production

The basic resources used to produce goods and services, including Land, Labor, Capital, and Management.