EC4101 Week 9 Lecture 1

Study Notes

Production: The conversion of inputs (labor, capital, etc.) into outputs.
Production Function: The relationship between the quantity of inputs a firm uses and the quantity of outputs it produces.
Fixed Input: An input whose quantity is fixed for a period and cannot be varied.
Variable Input: An input whose quantity can be varied by the firm.
Long Run: The period in which all inputs can be varied.
Short Run: The period in which at least one input is fixed.
Total Product Curve: Shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.
Marginal Product: The change in output resulting from a one-unit increase in the amount of the variable input (e.g., labor). It initially rises, then declines.

Technical Efficiency: Achieved when there's no other way to produce a given output using less of one input and no more of other inputs.

Fixed Costs: Costs that do not depend on the quantity of output. They represent the cost of the fixed input.
Variable Costs: Costs that depend on the quantity of output. They represent the cost of the variable input.
Total Cost: The sum of fixed and variable costs at a given output level.

Law of Diminishing Marginal Returns: As the use of a variable input increases with the quantity of fixed input held constant, the marginal product of the variable input will eventually decrease.

Marginal Cost: The change in total costs generated by one additional unit of output. It equals the change in total costs divided by the change in output quantity.
Marginal Costs = Change in Total Costs / Output Quantity
Marginal Total Costs = Marginal Variable Costs

Average Output/Marginal Productivity: Output produced divided by the amount of the variable factor employed.

Marginal Product: The change in the total outputs generated by one additional unit of input.
Marginal Product = Change in Total Product / Change in Input