8. Production and Cost
variable factor of production
A factor of production whose quantity can be changed during a particular period.
fixed factor of production
A factor of production whose quantity cannot be changed during a particular period.
short run
A planning period over which the managers of a firm must consider one or more of their factors of production as fixed in quantity.
total fixed cost
Cost that does not vary with output.
total variable cost
Cost that varies with the level of output.
total product curve:
Graph that shows the quantities of output that can be obtained from different amounts of a variable factor of production, assuming other factors of production are fixed.
firms
Organizations that produce goods and services.
marginal product:
The amount by which output rises with an additional unit of a variable factor.
marginal product of labor
The amount by which output rises with an additional unit of labor.
fixed costs
The costs associated with the use of fixed factors of production.
variable costs
The costs associated with the use of variable factors of production.
law of diminishing marginal returns
The marginal product of any variable factor of production will eventually decline, assuming the quantities of other factors of production are unchanged.
average product
The output per unit of variable factor.
long run
The planning period over which a firm can consider all factors of production as variable.
negative marginal returns
The range over which additional units of a variable factor reduce total output, given constant quantities of all other factors.
diminishing marginal returns
The range over which each additional unit of a variable factor adds less to total output than the previous unit.
increasing marginal returns
The range over which each additional unit of a variable factor adds more to total output than the previous unit.
average product of labor
The ratio of output to the number of units of labor (Q/L).
production function
The relationship between factors of production and the output of a firm.
total cost
The sum of total variable cost and total fixed cost.
average total cost
Total cost divided by quantity; it is the firm's total cost per unit of output.
average fixed cost
Total fixed cost divided by quantity.
average variable cost
Total variable cost divided by quantity; it is the firm's total variable cost per unit of output.
marginal cost
the amount by which total cost rises with an additional unit of output.
