Production Functions

short run

period of time in which at least one of the firm’s inputs is fixed

long run

period of time in which a firm can vary ALL of its inputs

technology

more outputs with same inputs

total cost

cost of all inputs used by a firm (FC + VC)

fixed costs

costs that remain constant as a firm’s level of output changes

variable costs

costs that change as the firm’s level of output changes

marginal cost

increase in total cost resulting in producing another unit of output (change in TC / change in Q)

average total cost

TC / Q

Average fixed cost

FC / Q

Average variable cost

VC / Q

implicit cost

nonmonetary opportunity cost

explicit cost

cost that involved spending money

Marginal Product of labor

increase in total output resulting from adding an additional unit of labor input (change in Q / change in labor)

average product of labor

TQ / L

production function

relationship between a firm’s inputs and outputs

long-run average cost curve

a curve that shows the lowest cost at which a firm is able to produce a given

economies of scale

when a firm’s long-run average cost falls as it increases the quantity of output produced

constant returns to scale

LARC remains unchanged as output increases

diseconomies of scale

when a firms LARC rises as output increases

minimum efficient scale

level of output at which all economies of scale are exhausted