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

• 

• 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

AVC & AP Relationship

• As AP increases » AVC decreases

• As AP decreases » AVC increases

• AVC is minimized when AP is maximized