ECO101H1 Lecture Notes - Lecture 12: Production Function, Marginal Product, Fixed Cost
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ECO101H1 Full Course Notes
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To answer, must first understand firms" cost-schedules. Production function: relates output to quantity of inputs (capital, labour) Short-run: one input (capital) is fixed, while one input (labour) can vary. Long-run: all inputs (capital, labour) can vary. Gm can vary amount of labour (overtime, lay-offs) Gm cannot vary number of plants (capitals) Gm can vary number plants and amount of labour. The marginal product of a variable input, in the presence of a fixed input, eventually diminishes. Must make all meals, attend all ovens, no specialization. Chef can specialize, help one another marginal product rises. Eventually, kitchen becomes too crowded, chefs must wait to use ovens, etc marginal product declines. Total cost (tc): total of all costs. Total fixed cost (tfc): total cost of fixed input. Total variable cost(tvc): total cost of variable input. **marginal cost (mc): increases in total cost / increase in output. Detailed cost table: two preliminary observations: if mp rises, mc falls (and conversely)