Micro Unit 3 Vocab

3.1: The Production Function

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

long run

the time period in which all inputs or prices (including nominal wages) are fully flexible or can be varied (NO fixed inputs)

short run

the time period in which many production costs, including nominal wages, are not fully flexible; time period in which at least one input is fixed

total product curve

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

marginal product

the additional quantity of output produced by using one more unit of an input

diminishing returns to an input

when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

3.2: Short-Run Production Costs

fixed cost

a cost that does not depend on the quantity of output produced; the cost of the fixed input

variable cost (VC)

a cost that depends on the quantity of output produced; the cost of the variable input

total cost

the sum of the fixed cost and the variable cost of producing a given quantity of output

total cost curve

shows how total cost depends on the quantity of output