Short Run Production/Costs

Total Product (TP)

Output made with a specific number of workers, e.g., 5 workers make 10 clocks.

Marginal Product (MP)

Extra output obtained from adding one additional resource.

Average Product (AP)

Labor productivity calculated as Total Revenue (TR) divided by Units of Labor.

Law of Diminishing Marginal Returns

As more workers are added, at some point the Marginal Product will start to decline.

When MP > AP, what happens to AP?

When MP < AP, what happens to AP?

What occurs at the intersection of MP and AP?

AP is rising

AP is falling

AP is at its maximum.

Fixed Costs (FC)

Costs that remain unchanged when quantity (Q) changes.

Variable Costs (VC)

Costs that change when quantity (Q) changes.

Total Costs (TC) formula

Total Costs (TC) equals Fixed Costs (FC) plus Variable Costs (VC).

(AVC)Average Variable Costs formula

VC/Q

(ATC)Average Total Costs

TC/Q OR AFC + AVC

(AFC)Average Fixed Costs

FC/Q

(MC)Marginal Cost

∆TC(change in TC)/∆Q(change in Q)

As MP increases what happens to MC?

AS MP decreases what happens to MC?

MC is minimized when?

MC decreases as MP increases

MC increases as MP decreases

MC is minimum when MP is maximum

As AP increases what happems to AVC?

As AP decreases what happens to AVC?

When AP is maximized what happens to AVC?

AVC decreases as AP increases

AVC increases as AP decreases

AVC is minimized when AP is maximized