Chapter 11 - Inputs and Costs
fixed input
an input whose quantity is fixed for a period of time and cannot be varied.
variable input
an input whose quantity the firm can vary at any time.
variable cost
a cost that depends on the quantity of output produced. It is the cost of the variable input.
fixed cost
a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.
marginal product of labor formula
change in quantity of output / change in quantity of labor
marginal cost formula
change in total cost / change in quantity of output
U-shaped average total cost curve
falls at low levels of output and rises at higher levels
total cost formula
fixed cost + variable cost
average fixed cost formula
fixed cost / quantity of output
average fixed cost
fixed cost per unit of output
minimum-cost output
quantity of output where average total cost is lowest - the bottom of the U-shaped average total cost curve
production function
relationship between the quantity of inputs a firm uses and the quantity of output it produces.
total product curve
shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input.
total cost curve
shows how total cost depends on the quantity of output.
marginal product
the additional quantity of output that is produced by using one more unit of that input.
spreading effect
the larger the output, the greater the quantity of output over which fixed cost is spread - leads to a lower average fixed cost
diminishing returns effect
the larger the output, the greater the quantity of variable input required to produce additional units - leads to higher average variable cost
total cost
the sum of the fixed cost and the variable cost of producing that quantity of output.
long run
the time period in which all inputs can be varied.
short run
the time period in which at least one input is fixed.
average cost formula
total cost / quantity of output
average cost
total cost / quantity of output produced.
average variable cost formula
variable cost / quantity of output
average variable cost
variable cost per unit of output
diminishing returns to an input
when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.