Short Run Production/Costs

Product

  • (TP)Total Product » output made w a number of workers(5 workers make 10 clocks)

  • (MP)Marginal Product » extra output from 1 additional resource

  • Average product » labor productivity(TR ÷ Units of Labor)

Law of Diminishing Marginal Returns » as workers increase, at one point MP will decline

AP & MP Relationship

  • Theory of Firms: product, costs, revenue, and profit

  • When MP> AP » AP is rising

  • When MP < AP » AP is falling

  • MP & AP intersection » AP is at maximum

Costs

  • (FC)Fixed costs » costs that dont change when Q changes

  • (VC)Variable costs » costs that change when Q changes

  • (TC) Total costs » FC + VC

  • (AVC)Average Variable Costs » VC/Q

  • (ATC)Average Total Costs » TC/Q OR AFC + AVC

  • (AFC)Average Fixed Costs » FC/Q

  • (MC) » ∆TC(change in TC)/∆Q(change in Q)

MC & MP Relationship

  • As MP increases » MC decreases

  • As MP decreases » MC increases

  • MC is minimized when MP is maximized

The Law of Diminishing Marginal Returns - Economics Help

AVC & AP Relationship

  • As AP increases » AVC decreases

  • As AP decreases » AVC increases

  • AVC is minimized when AP is maximized