Production Function and Costs
Lesson 4.54 4.55
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
Diminishing Returns
Firm Costs (55)
• From the Production Function to Cost Curves– Fixed Costs– Variable Costs– Total Cost
Marginal Cost• Marginal Cost
– Cost of making the next item– MC=Change in Total Cost/Change in Quantity of Output
Figure 55.2 Total Cost and Marginal Cost Curves for Selena’s Gourmet SalsasRay and Anderson: Krugman’s Economics for AP, First EditionCopyright © 2011 by Worth Publishers
Average Cost• Average Cost
– Average Fixed Cost (AFC)
– Average Variable Cost (AVC)
– Average Total Cost (ATC)
– Minimum Average Total Cost (M)
– Marginal Cost (MC) and ATC