1. Production

2. Recall that
Total Product- total output of a particular good or service produced by a firm
Marginal Product- additional output produced for every one additional unit of input employed (say, labor).
Average Product- ratio of output to input

3. Law of Diminishing Returns- as successive units of variable resource are added to fixed resource. Marginal product that can be attributed to each additional unit of variable resource will decline.

4. Stages of production

5. SHORT RUN COSTS TC= TFC+TVC AFC= TFC/Q AVC= TVC/ Q ATC= AFC+AVC
MC= ∆TC/∆Q

6. TP/ Q
TFC
TVC TC
AFC
AVC
ATC MC
100 1 90
190
90.00 2
170
270 50
85.00
135 80 3
240
340
33.33
80.00
113.33 70 4
300
400 25
75.00 60 5
370
470 20
74.00 94 6
450
550
16.67
91.67 7
540
640
14.29
77.14
91.43 8
650
750
12.50
81.25
93.75
110 9
780
880
11.11
86.67
97.78
130 10
930
1030
10.00
93.00
103.00
150

7.  As the total number of goods produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.

8. As added input increases, AVC declines initially, reaches a minimum, and then increases again.

10. MARGINAL COST= is the extra , or additional, cost of producing more unit of output.
MC= change in TC/ change in Q

11. Marginal cost designates all the cost incurred in producing the last unit of output.

12. MP and MC relationship

13. Changes in either resource prices will cause costs to change and cost curves to shift.

14. SampLe Exercises Input TP Marginal Product Average product 1 15 2 34 31 15 2 34 3 51 4 65 5 74 6 80 7 83 8 82

15. A firm has Fixed costs of P60
A firm has Fixed costs of P60.00 and variable costs as indicated in the table below. TP
TFC
TVC TC
AFC
AVC
ATC MC 1 45 2 85 3
120 4
150 5
185 6
225 7
270 8
325 9
390 10
465

16. Long RUN COSTS
In the long run, all factors of production are variable..

17. Q=f (L,K)

18. The length of the long run differs from industry to industry depending upon the nature of production.

19. The long-run ATC curve is generally U-shaped.

20. The long run ATC curve is composed of segments of SR ATC curves, and it represents the various plant sizes a firm can construct in the long run.

22. Economies of scale- reductions in the average total cost of producing a product as the firm expands the size of plant
Plant- a physical establishment that performs one or more functions in the production, fabrication, and distribution of goods and services.
Firm- an organization that employes resources to produce a good or service for profit and owns and operates one or more plants.

23. Economies of scale are first encountered as a small firm expands.
Greater specialization in the use of labor and management, the ability to use of labor and management, and the spreading of start-up costs among more units of output all contribute to economies of scale.

24. As the firm continues to grow, it encounter diseconomies of scale stemming from managerial complexities that accompany large-scale production.

25. How the output of a business responds to a change in factor inputs is called returns to scale
It refers to changes in output resulting from a proportional change in all inputs (where all inputs increase by a constant factor). 

26. Increasing returns to scale occur if output increases by more than that proportional change
Decreasing returns to scale occur if output increases by less than that proportional change
Constant returns to scale occur if output increases by that same proportional change then there are

27. A firm's production function could exhibit different types of returns to scale in different ranges of output.
Typically, there could be increasing returns at relatively low output levels, decreasing returns at relatively high output levels, and constant returns at one output level between those ranges.

28. Q1
Cost Q2 10 50 60
100 20
180 30
150
130
250
Good 1
Good 2
Both

29. A. Does Good 1 indicate economies of scale? Why?
B. Does Good 2 indicate economies of scale?Why?
C. Do the two goods indicate economies of scope? Why?
'economies of scope' refers to lowering average cost for a firm in producing two or more products