1. Production in the Short Run

2. Short-run & Long-run Costs
Short-run: the short-run is the time period in which at least one variable is fixed (i.e. cannot be varied or adjusted)
Fixed plant capacity
Variable intensity of plant use
Variable output
Long-run: the long run is the time period in which all inputs can be varied or adjusted
Variable plant capacity
Firms enter and exit

3. Fixed-Inputs: a fixed input is an input whose quantity is fixed and cannot be varied
It is usually assumed that capital and land are fixed
Variable Inputs: a variable input is an input whose quantity the firm can vary
It is usually assumed that labor and raw materials are variable

4. Total, Average and Marginal Product
Given a fixed plant capacity there are three key variables,
Total Product (TP): is the total quantity of output produced with a given quantity of the variable input (e.g. labor)
Average Product (AP): measures labor productivity, it represents the output per labor input.
Marginal Product (MP): extra output associated with adding a unit of the variable resource (e.g. labor),

5. We must know how output changes as the amount of labor is changed
Example; Suppose that there are only two inputs, labor (denoted L) and capital (denoted K). Labor is a variable input and capital is a fixed input
Therefore, in the short run, output (q) can only be changed (increased or decreased) by changing (increasing or decreasing) labor
We must know how output changes as the amount of labor is changed
Capital (K)
Sewing Machines 3
Labor (L)
Workers per day 1 2 3 4 5 6
Total Product
T-shirts per day 80
200
250
270
280
Marginal Product
T-shirts per day 80
120 50 20 10
-10
Average Product
T-shirts per day 80
100
83.3
67.5 56 46

6. Law of Diminishing Returns
Law of Diminishing returns: as successive units of a variable resource (labor) are added to a fixed resource (capital or land) beyond some point the extra, or marginal, product that can be attributed to each additional unit of the variable resource will decline.
The addition of more variable input causes marginal product to fall after some point

7. Three Stages of Production
The above graph can be divided into three ranges:
In the first range, MPL increases as more workers are added.
The slope of the total product curve is getting steeper
In the second range, MPL decreases as more workers are added
The slope of the total product curve is positive but getting flatter
In the third range, MPL falls below zero and total product decreases
This range is never chosen by business.

8. Average versus Marginal Product
There are three cases we need to examine,
MPL > APL then APL is increasing & the slope of the AP curve is positive
MPL = APL then APL is constant & the slope of the AP curve is zero
MPL < APL then APL is decreasing & the slope of the AP curve is negative