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Production Function and Costs Lesson 4.54 4.55. The Production Function (54) The Production Function is the relationship between inputs to a business.

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Presentation on theme: "Production Function and Costs Lesson 4.54 4.55. The Production Function (54) The Production Function is the relationship between inputs to a business."— Presentation transcript:

1 Production Function and Costs Lesson 4.54 4.55

2 The Production Function (54) The Production Function is the relationship between inputs to a business and outputs. Inputs and Outputs – Fixed Inputs – Variable Inputs – Long Run – Short Run Total Product Curve – Marginal Product of Labor – Diminishing Returns

3 Diminishing Returns

4 Firm Costs (55) From the Production Function to Cost Curves – Fixed Costs – Variable Costs – Total Cost

5 Marginal Cost – Cost of making the next item – MC=Change in Total Cost/Change in Quantity of Output

6 Figure 55.2 Total Cost and Marginal Cost Curves for Selena’s Gourmet Salsas Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

7 Average Cost – Average Fixed Cost (AFC) – Average Variable Cost (AVC) – Average Total Cost (ATC) – Minimum Average Total Cost (M) – Marginal Cost (MC) and ATC


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