Cost of Production and Labor

These flashcards cover key concepts related to the cost of production and labor, including definitions and relationships between different types of costs and production functions.

Production Function

Shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good.

Marginal Product

The increase in output arising from an additional unit of input.

Diminishing Returns

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

Explicit Costs

Direct, out-of-pocket payments for inputs.

Implicit Costs

The opportunity costs of using resources owned by the firm.

Total Cost

The sum of fixed and variable costs.

Fixed Costs

Costs that do not vary with the quantity of output produced.

Variable Costs

Costs that change when the quantity of output changes.

Marginal Cost

The increase in total cost that arises from producing one additional unit of output.

Long Run Average Total Cost Curve (LRATC)

The minimum of all possible short run average total cost curves.

Economies of Scale

A proportionate saving in costs gained by an increased level of production.

Diseconomies of Scale

The condition where the average cost of production increases as the scale of production increases.

Average Total Cost (ATC)

Total cost divided by quantity of output.

Average Fixed Cost (AFC)

Total fixed cost divided by quantity of output.

Average Variable Cost (AVC)

Total variable cost divided by quantity of output.