ENDURING UNDERSTANDING

PRD-1
Firms’ production and cost constraints over different input and output levels shape optimal decisions in the short run and long run.

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE
  • PRD-1.A
    a. Define (using graphs where appropriate) key terms and concepts relating to production and cost.
    b. Explain (using graphs where appropriate) how production and cost are related in the short run and long run.
    c. Calculate (using data from a graph or table as appropriate) the various measures of productivity and short-run and long-run costs.
ESSENTIAL KNOWLEDGE
  • PRD-1.A.4
    Fixed costs and variable costs determine the total cost.
  • PRD-1.A.5
    Marginal cost, average (fixed, variable, and total) cost, total cost, and total variable cost change as total output changes, but total fixed cost remains constant at all output levels, including zero output.
  • PRD-1.A.6
    Production functions with diminishing marginal returns yield an upward-sloping marginal cost curve.
  • PRD-1.A.7
    Specialization and the division of labor reduce marginal costs for firms.
  • PRD-1.A.8
    Cost curves can shift in response to changes in input costs and productivity.