# AP Microecon 3.1-3.4 Production Function and Costs

Studied by 17 people
0.0(0)
Get a hint
Hint

Production Function

1 / 37

# Earn XP

## Description and Tags

### 38 Terms

1

Production Function

The way a firm combines inputs to produce an output

New cards
2

Variable Inputs

inputs that can be changed in the short run to change production

New cards
3

Fixed Inputs

Inputs that cannot be changed in the short run to change production

New cards
4

Short Run

the period of time during which at least one of a firm's inputs is fixed (too short of time to alter its plant capacity)

New cards
5

Plant Capacity

a firm's maximum potential level of production

New cards
6

Long Run

the time period in which all inputs can be varied

New cards
7

Total Product

Total Quantity of output produced by a certain amount of inputs

New cards
8

Marginal Product

The additional output produced by one more unit of variable input (often labor)

New cards
9

Average Product

The average quantity of output produced by one unit of a variable input (often labor)

New cards
10

Specialization

A focus on a particular activity or area of study

New cards
11

Diminishing Returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

New cards
12

why does diminishing marginal returns occur?

More variable inputs are added to fixed amount of fixed inputs

New cards
13

Slope of the Total Product Line

Marginal Product (when MP is increasing, TP is increasing at an increasing rate; when MP is decreasing, TP is increasing at a decreasing rate; when MP is zero, TP is at its max; when MP is negative, TP is decreasing)

New cards
14

When is Average Product at is Maximum?

When MP = AP. When MP is above AP, AP is rising; when MP is below AP, AP is falling

New cards
15

Fixed Cost

A cost that must be paid even when a firm's output is zero. A cost that is the same at all output levels (e.g. rent)

New cards
16

Variable Cost

A cost that changes as output changes

New cards
17

Total Cost

the sum of fixed and variable costs

New cards
18

Marginal Cost (MC)

The additional cost of producing one more unit of output (MC initially decreases due to specialization, but then rises due to diminishing returns)

New cards
19

Average Fixed Cost (AFC)

fixed cost divided by the quantity of output

New cards
20

Average Variable Cost (AVC)

variable cost divided by the quantity of output (VC/Q)

New cards
21

Average Total Cost (ATC)

total costs divided by quantity of output (TC/Q); AFC+AVC = ATC

New cards
22

U-Shaped Curves

ATC and AVC

New cards
23

Where does MC cross the ATC and AVC Curves?

At their lowest points

New cards
24

Always decreasing cost curve

AFC

New cards
25

Long Run Costs

all costs are variable, no fixed costs

New cards
26

Increasing Returns to Scale

Output is increasing at a faster rate than all inputs

New cards
27

Decreasing Returns to Scale

Output is increasing at a slower rate than all inputs

New cards
28

Constant Returns to Scale

Output is increasing at the same rate as all inputs

New cards
29

Economies of Scale

Long-Run ATC decreases as output increases

New cards
30

Diseconomies of Scale

Long-Run ATC increases as output increases

New cards
31

Constant Returns to Scale (Efficient Scale)

Long-Run ATC is constant as output increases

New cards
32

Minimum Efficient Scale

Determines the number of firms in a market

New cards
33

Where should a firm produce in the long-run?

At the place where Long-Run ATC is minimized

New cards
34

Economic Profit

total revenue minus total cost, including both explicit and implicit costs

New cards
35

Accounting Profit

total revenue minus total explicit cost

New cards
36

Implicit Costs

The money value of an opportunity cost

New cards
37

Explicit Costs

Money spent on materials, utilities, labor, rent, capital, etc.

New cards
38

Normal Profit

Covers the explicit costs and forgone income (zero economic profit)

New cards

## Explore top notes

Note
Studied by 8 people
Updated ... ago
5.0 Stars(1)
Note
Studied by 32 people
Updated ... ago
4.0 Stars(1)
Note
Studied by 1 person
Updated ... ago
5.0 Stars(1)
Note
Studied by 1177 people
Updated ... ago
5.0 Stars(11)
Note
Studied by 46 people
Updated ... ago
5.0 Stars(1)
Note
Studied by 30 people
Updated ... ago
5.0 Stars(2)
Note
Studied by 16 people
Updated ... ago
5.0 Stars(1)
Note
Studied by 5163 people
Updated ... ago
5.0 Stars(26)

## Explore top flashcards

Flashcard31 terms
Studied by 33 people
Updated ... ago
5.0 Stars(2)
Flashcard71 terms
Studied by 4 people
Updated ... ago
5.0 Stars(1)
Flashcard20 terms
Studied by 67 people
Updated ... ago
5.0 Stars(1)
Flashcard192 terms
Studied by 6 people
Updated ... ago
5.0 Stars(1)
Flashcard24 terms
Studied by 2 people
Updated ... ago
5.0 Stars(1)
Flashcard29 terms
Studied by 85 people
Updated ... ago
5.0 Stars(1)
Flashcard70 terms
Studied by 19 people
Updated ... ago
5.0 Stars(1)
Flashcard52 terms
Studied by 483 people
Updated ... ago
5.0 Stars(1)