### Review Notes - Short-Run Production and Costs

- Short-Run Production.
- Definitions.
- Total Physical Product of Labor (TPPL), what does it look like in a graph?
- MPPL = change in TPPL(change in Q) ÷ change in L. What is MPPL? What is the relationship between TPPL and MPPL?
- APPL = TPPL(Q) ÷ L. What is APPL. What is the relationship between MPPL and APPL?
- The law of diminishing marginal productivity - As the use of labor increases in the short-run, ceterus paribus, the output produced by the last worker hired must eventually fall - why is this true?
- Graphs and the relationship between the graphs.

- Short-Run Costs.
- Definitions.
- Total Fixed Cost (TFC) = the cost of all inputs which are fixed in the short run => TFC does not vary as Q changes.
- Total Variable Cost (TVC) = wage (w) * Labor (L) = wL.
- Total Cost (TC) = TVC + TFC.
- Marginal Cost = change in TC ÷ change in Q = change in TVC/change in Q. What does MC really stand for? The cost of producing the last unit.
- Average Variable Cost (AVC) = TVC ÷ Q.
- Average Fixed Cost (AFC) = TFC ÷ Q.
- Average Total Cost (ATC or AC) = TC ÷ Q.
- ATC AVC + AFC.
- Graphs - You need to know what the graphs are and what the relationship between the various concepts are on the graphs.
- What does TC, TVC, and TFC look like on a graph?
- What does ATC, AVC, AFC, and MC look like on a graph?
- What is the relationship between MC and AVC? MC and ATC? ATC and AVC?
- Relationship between production and costs.
- if MPPL increases (or decreases) => what happens to MC, AVC, ATC, AFC? Why?
- if APPL increases (or decreases) => what happens to MC, AVC, ATC, AFC? Why?

Previous Topic

Next Topic