Fixed and variable costs, marginal cost, and production function concepts in microeconomic theory. Front: the term or concept. Back: a plain-language definition.
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- Define total product (TP).
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The total quantity of output produced at a given level of input use.- Define marginal product (MP).
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The additional output produced by one more unit of input, holding all other inputs constant.- Define average product (AP).
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The output per unit of input, calculated as total product divided by total input quantity.- What is the law of diminishing marginal returns?
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As more units of a variable input are added to a fixed input, the marginal product of the variable input eventually decreases.- What is the difference between increasing and decreasing marginal returns?
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Increasing returns occur when marginal product is rising; decreasing returns occur when marginal product is falling.- Define fixed cost (FC).
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A cost that does not change with the level of output in the short run.- Give two examples of fixed costs.
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Factory rent, property taxes, insurance, administrative salaries, or equipment depreciation (any costs remaining the same regardless of output).- What is total fixed cost (TFC)?
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The sum of all fixed costs incurred by a firm at any output level.- Define average fixed cost (AFC).
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Total fixed cost divided by the quantity of output produced.- Why does average fixed cost decline as output increases?
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The same total fixed cost is spread over more units, so the cost per unit falls.- Define variable cost (VC).
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A cost that changes with the level of output in the short run.- Give two examples of variable costs.
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Raw materials, hourly labor wages, electricity for production, shipping, or packaging (any costs that increase with output).- What is total variable cost (TVC)?
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The sum of all costs that vary with the output level.- Define average variable cost (AVC).
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Total variable cost divided by the quantity of output produced.- Why does average variable cost typically rise after a certain output level?
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Due to diminishing marginal returns, additional units of variable input become progressively less efficient, raising the cost per unit.
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