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### 16 Cards in this Set

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 What is Production Function? A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs. In short-run which resources are fixed, which are not? Labor is variable and all other resources are fixed. What is the formula for MPP? The change in total output associated with one additional unit of input What is the law of diminishing returns? The marginal physical product of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs Graph MPP What is the formula for Marginal Cost? The increase in total cost associated with a one unit increase in production. Graph Marginal Cost. What is the relationship of MPP and MC? When MPP is increasing then MC must be failing and vice versa. What is Total Cost? The market value of all resources used to produce a good or service. What is fixed cost? Costs of production that do not change when the rate of output is altered (e.g. the cost of basic plant and equipment) What is Variable cost? Costs of production that change when the rate of output is altered (e.g. labor and material costs) Graph MC, TC FC and VC What is the relationship between average total cost and marginal cost? Marginal cost is the change in total cost for a change in quantity. Average total cost is the per unit burden, therefore when MC < ATC then AC lowers. Explain the difference between accounting costs and economic costs. Accounting costs are explicit cost such as direct payments to resources. Economic costs are explicit and implicit cost which are value of resources used even w/o direct payment. Explain the difference between short run and long run cost of production. With short run labor is variable where all other resources are fixed. With long run all resources are variable. Explain economies of scale. Economies of scale / increse returnes to scale Inputs double then outputs more than doube Therefore ATC is lower Dis-economies of scale / decrease returns to scale Inputs double then outputs less than double Therefore ATC increases Constant returns to scale Inputs double then outputs double No change in ATC