Production, Cost and Competition

Concept of Production¶

Total Production = All output

Slope of Total Production = Marginal Production

\(Marginal\ Product = \dfrac{\Delta output}{\Delta input}\)

\(Average\ Product = \dfrac{Total\ Product}{Quantity\ of\ Factors\ of\ Production}\)

MP, AP is associated with Input Usage and Product Changes

Law of Diminishing Marginal Product¶

As a firm uses more of a variable factor of production, with a given quantity of a fixed factor of production, the Marginal Product of the variable factor eventually diminishes.

Short-Run Production Cost¶

\(Total\ Cost = Total\ Fixed\ Cost + Total\ Variable\ Cost\)

\(Average\ Total\ Cost = AFC + AVC = \dfrac{Total\ Cost}{Quantity}\)

\(Average\ Fixed\ Cost = \dfrac{Fixed\ Cost}{Quantity\ of\ Output}\)

\(Average\ Variable\ Cost = \dfrac{Variable\ Cost}{Quantity\ of\ Output}\)