Production and Costs

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12 Terms

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Production Function

Relationship between inputs and outputs

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Short Run

At least one resource is fixed.

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Long Run

All inputs are variable.

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Marginal Product (MP)

Additional output from one more input.

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Law of Diminishing Returns

MP decreases as more of a variable input is added.

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Fixed Cost (FC)

Costs that don’t vary with output (e.g., rent).

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Variable Cost (VC)

Costs that vary with output (e.g., materials).

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Total Cost (TC)

Fixed Cost + Variable Cost

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Average Total Cost (ATC)

Total Cost ÷ Q

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Marginal Cost (MC)

Change in TC from one more unit produced

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Economies of Scale

ATC decreases as output increases (in long run)

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Diseconomies of Scale

ATC increases as output increases.