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.