HL Production & Cost Vocabulary (Ch 5)

Vocabulary flashcards covering production and cost concepts from Chapter 5 Extensions.

Short Run

The time period during which at least one factor of production is fixed in quantity.

Long Run

The time period during which all factors of production are variable.

Variable Factors of Production

Inputs whose quantity can be altered in the short run to adjust output (e.g., labor, raw materials).

Fixed Factors of Production

Inputs whose quantity cannot be easily changed in the short run (e.g., physical plant size, heavy capital equipment).

Total Product (TP)

The total physical output produced by a firm using a given quantity of inputs.

Marginal Product (MP)

The additional output generated by adding one extra unit of a variable input (e.g., $MP = \frac{\Delta TP}{\Delta L}$).

Average Product (AP)

The average output produced per unit of variable input (e.g., $AP = \frac{TP}{L}$).

Law of Diminishing Returns

The short-run principle stating that as units of a variable input are added to fixed inputs, marginal product eventually declines.

Total Cost (TC)

The total monetary expenditure incurred by a firm to produce a given output level ($TC = TFC + TVC$).

Total Fixed Cost (TFC)

Costs that do not vary with the level of output in the short run (e.g., rent).

Total Variable Cost (TVC)

Costs that change directly with the level of output produced (e.g., wages for hourly workers, raw materials).

Average Cost (AC / ATC)

The total cost per unit of output produced ($ATC = \frac{TC}{Q}$).

Marginal Cost (MC)

The extra cost incurred from producing one additional unit of output ($MC = \frac{\Delta TC}{\Delta Q}$).

Economies of Scale

Cost advantages experienced by a firm when long-run average total costs ($LRATC$) decrease as output expands.

Diseconomies of Scale

Cost disadvantages experienced by a firm when long-run average total costs ($LRATC$) increase as output expands.