Key Terms
Firm
An organization that combines labor, capital, land, and raw materials to produce outputs worth more than the inputs.
Production
The process of combining inputs to produce outputs. Includes manufacturing, transportation, distribution, retail; anythi
Technology (economics definition)
The process or method by which inputs are combined to produce outputs. Has nothing to do with computers or devices.
Natural Resources
Land, raw materials, energy inputs.
Labor
Human effort, both physical and mental, used in production.
Capital (physical)
Machines, equipment, buildings. NOT money.
Technology
The method used to combine inputs. How inputs are organized and processed matters as much as what inputs are used.
Entrepreneurship
The decision-making function; combines all other inputs and bears the risk.
Shorthand form (most used)
Q = f[L, K]
Fixed inputs
Cannot be easily increased or decreased in the short run.
Variable inputs
Can be easily increased or decreased.
Short run
At least one input is fixed. Output can only change by adjusting variable inputs.
Long run
ALL inputs are variable. The firm can change anything.
Total Product (TP)
Total output produced with a given amount of labor and fixed capital. Same thing as Q in the short run.
Marginal Product (MP)
Additional output from adding one more worker.