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ProductionRelationships - Definitions Production Function...

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Definitions * Production Function: Factor (X) Æ Total Product (TP or Q) Average Product: Output per unit input: AP X = Q / x Marginal Product: Additional output from additional unit of input: MP X = Δ Q / Δ x o Law of diminishing returns (diminishing marginal product) – as Q (or x) increases, the MP X will eventually decrease. Profits: Total Revenue – Total Costs: Profits = TR – TC Total Cost: TC = FC + VC (see below) Average Total Cost: ATC = TC / Q Fixed Cost – Payment to fixed inputs (pay it regardless of production): FC Average Fixed Cost: AFC = FC / Q Variable Cost – Payment to variable inputs (increases with x and = 0 when not producing): VC = w · x Average Variable Cost: AVC = VC / Q Marginal Cost – Additional cost from additional unit of output: MC = Δ TC / Δ Q Total Revenue (for competitive firm): TR = p · Q Marginal Revenue – Additional revenue from selling additional unit of output: MR = Δ TR / Δ Q
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