Production Theory and Cost Analysis

Set of vocabulary flashcards covering key concepts in Production Theory and Cost Analysis.

Production

Refers to the output of goods and services produced by businesses within a market.

Short Run Production

A period of time when there is at least one fixed factor input.

Long Run Production

A time period in which all factors of production can change.

Fixed Inputs

Inputs that do not change as output increases.

Variable Inputs

Inputs that change when output increases.

Law of Diminishing Returns

A principle stating that as more inputs are added while holding others fixed, the additional output will eventually begin to decrease.

Productivity

How productive labor and other inputs are within the production process.

Total Product (TP)

The total output produced by a firm in a given time period.

Marginal Product (MP)

The additional output generated by adding one more unit of labor or input.

Average Product (AP)

The total output per unit of input, calculated as Total Product divided by the number of inputs used.

Fixed Costs

Expenses that do not change in proportion to the activity of a business.

Variable Costs

Costs that change in direct proportion to the activity of a business.

Break-even Point

The point where total revenue equals total cost, resulting in no profit or loss.

Production Function

Refers to the greatest output that can be created given a certain number of inputs.

Quality Control

The process of overseeing the freshness, design, safety, and standards of goods produced.

Inventory Control

Managing the materials used in the production process to ensure efficiency.

Purchasing

The act of acquiring raw materials necessary for production.

Capital Goods

Products used to produce other goods, such as machinery.

Consumer Goods

Goods sold directly to individuals for personal use.

Stages of Production

The phases through which production goes, characterized by the relationships between total, marginal, and average products.