Short-Run Production Costs. fixed input Any resource for which the quantity cannot change during the period of time under consideration.

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Presentation transcript:

Short-Run Production Costs

fixed input Any resource for which the quantity cannot change during the period of time under consideration

variable input Any resource for which the quantity can change during the period of time under consideration

short run A period of time in which a firm uses at least one fixed input long run A planning period of time in which a firm can vary all inputs including plant size

marginal product The change in the firm’s output brought about by adding one additional unit of input

law of diminishing returns The principle that beyond some point the marginal product decreases as additional units of a variable resource are added to a fixed factor

total fixed cost Costs that do not vary as output varies and that must be paid even if output is zero. For example, rent, interest on loans, and property taxes.

total variable cost Costs that are zero when output is zero and vary as output varies. Examples are wages, electricity, fuel, and materials.

total cost The sum of total fixed cost and total variable cost at each level of output TC = TFC + TVC

average fixed cost Total fixed cost divided by the quantity of output produced AFC = TFC / Q

average variable cost Total variable cost divided by the quantity of output produced AVC = TVC / Q

average total cost Total cost divided by the quantity of output produced. Also called per-unit cost. ATC = TC/Q OR ATC=AFC +AVC

marginal cost The increase in total cost resulting from an increase in one unit of output MC =  TC/  Q