Behind the Supply Curve: Inputs and Costs

A set of vocabulary flashcards derived from the lecture notes covering key economic concepts related to production functions, costs, and returns to scale.

Production Function

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

Fixed Input

An input whose quantity is fixed for a period of time and cannot be varied.

Variable Input

An input whose quantity the firm can vary at any time.

Total Product Curve

A graph that shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.

Marginal Product of Labor (MPL)

The change in output resulting from a one-unit increase in the amount of labor input.

Diminishing Returns

An increase in the quantity of an input, holding all other inputs fixed, that reduces that input's marginal product.

Fixed Cost

A cost that does not depend on the quantity of output produced, associated with fixed inputs.

Variable Cost

A cost that depends on the quantity of output produced, associated with variable inputs.

Marginal Cost

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

Average Total Cost (ATC)

Total cost per unit of output produced, calculated as TC/Q.

Economies of Scale

Increasing returns to scale when long-run average total cost declines as output increases.

Diseconomies of Scale

Decreasing returns to scale when long-run average total cost increases as output increases.

Constant Returns to Scale

When long-run average total cost remains constant as output increases.

Spreading Effect

The phenomenon where larger output spreads fixed cost over more units, leading to lower average fixed cost.

Diminishing Returns Effect

The increased variable input required to produce additional output, leading to higher average variable costs as output increases.