Level 59
Level 60

Supply & the Theory of Production

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the amount of a product offered for sale at a given price
Law of Supply
rule stating that more will be offered for sale at higher prices than at lower prices
change in quantity supplied
a change in amount offered for sale in response to a price change; movement along the supply curve
change in supply
change in amount offered for sale at each and every possible price; shift of the supply curve
A government payment to buyers or sellers on each unit purchased or sold.
supply elasticity
the responsiveness of quantity supplied to a change in price
theory of production
theory dealing with the relationship between the factors of production and the output of goods and services
short run
production period so short that only variable inputs (labor) can be changed
long run
production period long enough to change the amounts of variable (labor) and fixed (land, capital) inputs used in production
Law of Variable Proportions
rule stating that short-run output will change as one input is varied while others are held constant
raw materials
unprocessed natural resources used in production
total product
the total output of production by a firm
marginal product
extra output due to the addition of one more unit of input
diminishing returns
a decrease in marginal product (while total product still increases) as additional units of variable input are added to a production process
fixed cost
a business expense that is not dependent on the level of goods or services produced; cost of production that does not change when output changes; (examples: rent, mortgage, salaries, utilities, insurance)
a broad category of fixed costs that includes interest rent taxes and executive salaries)
variable cost
a production cost that varies as output changes; (examples: labor, energy, raw materials)
total cost
all costs associated with production; variable costs plus fixed costs
marginal cost
the extra cost of producing one additional unit of production
an electronic business or exchange conducted over the internet
total revenue
total receipts; price of goods sold times quantity sold
marginal revenue
the extra revenue from the sale of one additional unit of output
marginal analysis
decision making that compares the extra cost of doing something to the extra benefits gained
break-even point
the amount of production needed if the firm is to recover its costs; the production level where total cost equals total revenue
profit-maximizing quantity of output
the level of production where marginal cost is equal to marginal revenue
Level 61