# data[].attributes.body
Define (using graphs where appropriate) key terms and concepts relating to production and cost.

Explain (using graphs where appropriate) how production and cost are related in the short run and long run.

Calculate (using data from a graph or table as appropriate) the various measures of productivity and short-run and long-run costs.

# data[].attributes.body
Firms’ production and cost constraints over different input and output levels shape optimal decisions in the short run and long run.

# data[].attributes.body
The production function explains the relationship between inputs and outputs both in the short run and the long run.

Marginal product and average product change as input usage changes, and hence, total product changes.

Diminishing marginal returns occur as the firm employs more of one input, holding other inputs constant, to produce a product (output) in the short run.

# data[].attributes.body
1. What is the importance of the firm’s production function?

2. Why is production often subject to diminishing returns to inputs?

3. What are the various types of costs a firm faces?

4. How does a firm’s costs generate marginal cost curves and average cost curves?

# data[].attributes.attachment_link.readable_text
Calculating the total variable cost

Calculating the total variable cost is generally quite simple. The total variable cost is equal to the variable cost for each unit of output (in the above example, each T-shirt) multiplied by the quantity of output (the total number of T-shirts produced). Here's that formula:

Total Variable Cost = Quantity of Output x Variable Cost per Unit of Output

Let's plug our T-shirt example into the formula above. Here is the variable cost of producing ten T-shirts:

$100 = 10 [# of T-shirts produced] x $10 [amount spent per T-shirt produced]

Calculating the variable cost per unit

Conversely, to calculate the variable cost per unit, you must add up your variable cost and then divide by the number of units. That formula looks like:
Unit Variable Cost = Total Variable Cost ÷ Quantity Produced
Again, if we apply this to our T-shirt example, here's how that looks:

$10 = $100 [total cost of producing 10 shirts] ÷ 10 [# of shirts produced]

These calculations become significantly more complicated when you add fixed and semi-variable costs into the mix. However, variable costs alone operate linearly, which makes them easy to understand.

# data[].attributes.attachment_link.description
Calculating the total variable cost is generally quite simple. The total variable cost is equal to the variable cost for each unit of output (in the above example, each T-shirt) multiplied by the quantity of output (the total number of T-shirts produced).

# data[].attributes.attachment_link.readable_text
If more and more of a variable Factor of Production is used in a combination with a fixed factor of production, marginal product, then average product will eventually decline. The law of diminishing marginal returns determines behavior of output in the short-run. Think of a pizzeria, with tables, chairs and ovens (fixed factor of production). With no workers the output is zero, with one worker the output is say 'x' units. The worker takes orders, makes pizzas, cleans tables and serves the bill. If there are two workers, the second worker can do the same work as the first and the output will be 2x units. They can specialize and further increase output.

Total Product

Marginal Product

Output will increase at an increasing rate till L1, therefore the marginal product is increasing till L1.

Adding extra workers increases total output, but at a decreasing rate, more workers contribute less each, and marginal product begins to fall (L1 to L2). Hiring more workers results in each new worker adding less to the output.

After L2, there is too much labor for the available capital, workers get in each other's way, and each contribution of every one new worker is negative.

No firms hires beyond L2; too much labor to capital, and less than L1; too much capital to labor.

Average Product (AP)

Total Product / Variable Factor of Production. Average product is maximum at the point that total product is the steepest.

Marginal Product (MP)

Marginal Product is the change in total product as a result of changing the variable factor of production by 1 unit. Ex: When one more chef is added, and production increases to x units, when the second worker is hired the out put increases by more than 2x units.

If Marginal Product > Average Product, then Average Product will rise

If Marginal Product < Average Product , then Average Product will drop

If Marginal Product = Average Product, then Average Product will be at maximum

For example: If you think of scores, in Jack's sixth test (marginal), he gets a score higher than his average, then his average will increase. If in the next test (marginal) he gets a score lower than his average, then his average will drop. If he gets a score that's the same as his average, then his average won't change.

# data[].attributes.attachment_link.title
Theory of Production: Short-Run | Intelligent Economist

# data[].attributes.attachment_link.description
If more and more of a variable Factor of Production is used in a combination with a fixed factor of production, marginal product, then average product will eventually decline. The law of diminishing marginal returns determines behavior of output in the short-run. Think of a pizzeria, with tables, chairs and ovens (fixed factor of production).

# data[].attributes.attachment_link.title
Diminishing Returns and the Production Function- Micro Topic 3.1

# data[].attributes.attachment_link.entities[].name
Active Learning Cooperative Learning Discovery Learning Community Microeconomic Cost Curves

# data[].attributes.attachment_link.title
Micro 3.5 AP Economics Marginal Product and Marginal Cost: Econ Concepts in 60 Seconds Review

# data[].attributes.attachment_link.description
New video for this topic- https://www.youtube.com/watch?v=C3m9FC3T3vw In this video I explain the relationship between marginal product and marginal cost. The bonus round explains a numeric example that shows that MP and MC are mirror images of each other. Please keep in mind that these clips are not designed to teach you the key concepts.

# data[].attributes.attachment_link.readable_text
Q. We've claimed that the efficient way to spread out work across firms in the same industry is to set the marginal cost of production to be the same across firms. Let's see if this works in an example. Consider a competitive market for rolled steel (measured by the ton) with just two firms: SmallCo and BigCo. If we wanted to be more realistic, we could say there were 100 firms like SmallCo and 100 firms like BigCo, but that would just make the math harder without generating any insight. (We'll also ignore fixed costs of starting up the firms just to make things a little simpler. ) The two firms have marginal cost schedules like this: What is the total cost of SmallCo producing 6 units of output?

Why is the answer 210? If anything, shouldn't it be 110?

# data[].attributes.attachment_link.title
Minimization of Total Industry Costs of Production | Microeconomics Videos

# data[].attributes.attachment_link.description
Q. We've claimed that the efficient way to spread out work across firms in the same industry is to set the marginal cost of production to be the same across firms. Let's see if this works in an example. Consider a competitive market for rolled steel (measured by the ton) with just two firms: SmallCo and BigCo.

# data[].attributes.attachment_link.readable_text
If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

# data[].attributes.attachment_link.title
Production, cost, and the perfect competition model | Khan Academy

# data[].attributes.attachment_link.description
This unit covers production and cost analysis and the behavior of firms in perfect competition. Topics include an introdduction to the short-run production function, diminishing marginal returns, the link between productivity and costs, the relationships that exist among cost curves, long-run costs, economies and diseconomies of scale, profit maximization, and the behavior of firms in perfectly competitive markets in the short run and the long run.

# data[].attributes.attachment_link.title
AP Microeconomics: 3.1-3.2 Production Function and Short-Run Production Costs