Chapter 7: Production Costs

These flashcards cover key vocabulary and concepts from Chapter 7 on Production Costs, providing definitions and explanations for important terms.

Production

A process that transforms inputs into outputs.

Input

Resources used in the production process, such as labor, materials, and capital.

Output

The final product produced from the inputs.

Marginal Product of Labor (MPL)

The increase in total product as a result of adding one more unit of labor.

Short Run (SR)

A period in which at least one input is fixed.

Long Run (LR)

A period in which all inputs are variable.

Total Product of Labor (TPL)

The quantity of output produced by labor.

Average Product of Labor (APL)

The total output divided by the quantity of labor employed.

Marginal Cost (MC)

The change in total cost resulting from a one-unit increase in output.

Total Cost (TC)

The sum of total fixed costs and total variable costs.

Fixed Cost (TFC)

Costs that do not change with the level of output.

Variable Cost (TVC)

Costs that vary with the level of output.

Law of Diminishing Returns

The principle that as more of a variable input is added to a fixed input, the additional output produced will eventually decrease.

Economies of Scale

Cost advantages that firms obtain due to the scale of operation, with cost per unit of output generally decreasing with increasing scale.

Diseconomies of Scale

Situations where increased production leads to higher costs per unit.

Normal Profit

The minimum level of profit needed for a company to remain competitive in the market.

Explicit Costs

Direct, out-of-pocket payments for the costs of resources.

Implicit Costs

The opportunity costs of using resources owned by the firm.