ECON 1030 - Production

Increasing Marginal Returns

A characteristic of production whereby the marginal product of the next unit of a variable resource utilized as a greater than that of the previous variable resource

Diminishing Marginal Returns

A characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource

Short Run

A period of time in which at least one input of production is fixed

Variable Costs

Costs that change with the amount of output produced, increasing as production increases and decreasing as production decreases

Fixed Costs

Costs that do not change with the amount of output produced

Explicit Costs

Monetary payments made by individuals, firms, and governments for the use of land, labor, capital, and entrepreneurial ability owned by others. Also known as accounting costs

Marginal Product (MP)

The additional output produced as a result of utilizing 1 more unit of a variable resource (i.e., labor or capital)

Average Product (AP)

The average amount of output produced per unit of a resource employed; total product divided by the number of units of a resource employed

Economic Costs

The costs associated with the use of resources; the sum of explicit and implicit costs

Marginal Cost (MC)

The extra or additional cost associated with the production of an additional unit of output

Implicit Costs

The opportunity costs of using owned resources; costs for which no monetary payment is expliclity made

Total Costs

The sum of the fixed and variable costs of production

Total Product (TP)

The total amount of output produced with a given amount of resources

Average Total Cost (ATC)

Total cost (TC) divided by the amount of output produced; total cost per unit

Average Fixed Cost (AFC)

Total fixed cost (TFC) divided by the amount of output produced; fixed cost per unit

Economic Profit

Total revenue minus economic costs, which include both explicit and implicit costs of production

Accounting Profit

Total revenue minus the explicit costs of production

Average Variable Cost (AVC)

Total variable cost (TVC) divided by the amount of output produced; variable cost per unit