PRODUCTION OUTPUTS
A FIRM'S PRODUCTION OUTPUTS ARE WHAT IT CREATES USING ITS
RESOURCES: GOODS OR SERVICES.
LEARNING OBJECTIVE
IDENTIFY HOW SUPPLIERS DETERMINE WHAT AND HOW MUCH TO SUPPLY
KEY POINTS
• THE PROFIT-MAXIMIZING AMOUNT OF OUTPUT OCCURS WHEN THE
MARGINAL COST OF PRODUCING ANOTHER UNIT EQUALS THE
MARGINAL REVENUE RECEIVED FROM SELLING THAT UNIT.
• OUTPUT ARE THE QUANTITY OF GOODS OR SERVICES PRODUCED IN A
GIVEN TIME PERIOD, BY A FIRM, INDUSTRY OR COUNTRY.
• THERE ARE FOUR TYPES OF MARKET SCENARIO THAT A FIRM MAY
ENCOUNTER WHEN MAKING A PRODUCTION DECISION: ECONOMIC
PROFIT, NORMAL PROFIT, LOSS-MINIMIZING CONDITION, AND
SHUTDOWN. THE FIRM SHOULD ALWAYS PRODUCE UNLESS IT
ENCOUNTERS A SHUTDOWN SCENARIO.
KEY TERMS
FIXED COSTS
, A COST OF BUSINESS WHICH DOES NOT VARY WITH OUTPUT OR SALES;
OVERHEADS.
AVERAGE TOTAL COST
AVERAGE COST OR UNIT COST IS EQUAL TO TOTAL COST DIVIDED BY THE
NUMBER OF GOODS PRODUCED (THE OUTPUT QUANTITY, Q). IT IS ALSO
EQUAL TO THE SUM OF AVERAGE VARIABLE COSTS (TOTAL VARIABLE COSTS
DIVIDED BY Q) PLUS AVERAGE FIXED COSTS (TOTAL FIXED COSTS DIVIDED
BY Q).
VARIABLE COST
A COST THAT CHANGES WITH THE CHANGE IN VOLUME OF ACTIVITY OF AN
ORGANIZATION.
MARGINAL COST
THE INCREASE IN COST THAT ACCOMPANIES A UNIT INCREASE IN OUTPUT;
THE PARTIAL DERIVATIVE OF THE COST FUNCTION WITH RESPECT TO
OUTPUT. ADDITIONAL COST ASSOCIATED WITH PRODUCING ONE MORE
UNIT OF OUTPUT.
PRODUCTION OUTPUTS ARE THE GOODS AND SERVICES CREATED IN A
GIVEN TIME PERIOD, BY A FIRM, INDUSTRY OR COUNTRY. THESE GOODS
CAN EITHER BE CONSUMED OR USED FOR FURTHER PRODUCTION.
PRODUCTION OUTPUTS CAN BE ANYTHING FROM CROPS TO
TECHNOLOGICAL DEVICES TO ACCOUNTING SERVICES. PRODUCING THESE
OUTPUTS INCUR COSTS WHICH MUST BE CONSIDERED WHEN DETERMINING
HOW MUCH OF A GOOD SHOULD BE PRODUCED.
DETERMINING WHAT TO PRODUCE AND HOW MUCH TO PRODUCE CAN BE
DIFFICULT. MICROECONOMICS ASSUMES THAT FIRMS AND BUSINESSES ARE
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A FIRM'S PRODUCTION OUTPUTS ARE WHAT IT CREATES USING ITS
RESOURCES: GOODS OR SERVICES.
LEARNING OBJECTIVE
IDENTIFY HOW SUPPLIERS DETERMINE WHAT AND HOW MUCH TO SUPPLY
KEY POINTS
• THE PROFIT-MAXIMIZING AMOUNT OF OUTPUT OCCURS WHEN THE
MARGINAL COST OF PRODUCING ANOTHER UNIT EQUALS THE
MARGINAL REVENUE RECEIVED FROM SELLING THAT UNIT.
• OUTPUT ARE THE QUANTITY OF GOODS OR SERVICES PRODUCED IN A
GIVEN TIME PERIOD, BY A FIRM, INDUSTRY OR COUNTRY.
• THERE ARE FOUR TYPES OF MARKET SCENARIO THAT A FIRM MAY
ENCOUNTER WHEN MAKING A PRODUCTION DECISION: ECONOMIC
PROFIT, NORMAL PROFIT, LOSS-MINIMIZING CONDITION, AND
SHUTDOWN. THE FIRM SHOULD ALWAYS PRODUCE UNLESS IT
ENCOUNTERS A SHUTDOWN SCENARIO.
KEY TERMS
FIXED COSTS
, A COST OF BUSINESS WHICH DOES NOT VARY WITH OUTPUT OR SALES;
OVERHEADS.
AVERAGE TOTAL COST
AVERAGE COST OR UNIT COST IS EQUAL TO TOTAL COST DIVIDED BY THE
NUMBER OF GOODS PRODUCED (THE OUTPUT QUANTITY, Q). IT IS ALSO
EQUAL TO THE SUM OF AVERAGE VARIABLE COSTS (TOTAL VARIABLE COSTS
DIVIDED BY Q) PLUS AVERAGE FIXED COSTS (TOTAL FIXED COSTS DIVIDED
BY Q).
VARIABLE COST
A COST THAT CHANGES WITH THE CHANGE IN VOLUME OF ACTIVITY OF AN
ORGANIZATION.
MARGINAL COST
THE INCREASE IN COST THAT ACCOMPANIES A UNIT INCREASE IN OUTPUT;
THE PARTIAL DERIVATIVE OF THE COST FUNCTION WITH RESPECT TO
OUTPUT. ADDITIONAL COST ASSOCIATED WITH PRODUCING ONE MORE
UNIT OF OUTPUT.
PRODUCTION OUTPUTS ARE THE GOODS AND SERVICES CREATED IN A
GIVEN TIME PERIOD, BY A FIRM, INDUSTRY OR COUNTRY. THESE GOODS
CAN EITHER BE CONSUMED OR USED FOR FURTHER PRODUCTION.
PRODUCTION OUTPUTS CAN BE ANYTHING FROM CROPS TO
TECHNOLOGICAL DEVICES TO ACCOUNTING SERVICES. PRODUCING THESE
OUTPUTS INCUR COSTS WHICH MUST BE CONSIDERED WHEN DETERMINING
HOW MUCH OF A GOOD SHOULD BE PRODUCED.
DETERMINING WHAT TO PRODUCE AND HOW MUCH TO PRODUCE CAN BE
DIFFICULT. MICROECONOMICS ASSUMES THAT FIRMS AND BUSINESSES ARE
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