Economics Cost Of Production Questions
Total product refers to the total quantity of output or goods produced by a firm or an industry during a specific period of time, using a given amount of inputs or resources. It represents the overall level of production achieved.
The relationship between total product and production costs is that as total product increases, production costs tend to change. Initially, as more units of input are added to the production process, total product increases at an increasing rate, known as the stage of increasing returns to scale. During this stage, production costs per unit decrease, as the fixed costs are spread over a larger quantity of output.
However, as the production process continues, total product eventually reaches a point where it starts to increase at a decreasing rate, known as the stage of diminishing returns to scale. At this stage, the additional units of input added to the production process result in smaller increases in total product. Consequently, production costs per unit start to increase, as the fixed costs are spread over a smaller quantity of output.
Ultimately, if the production process is pushed beyond its capacity, total product may start to decline, resulting in higher production costs per unit. This is known as the stage of negative returns to scale.
Therefore, the concept of total product is closely related to production costs, as changes in total product directly impact the efficiency and cost-effectiveness of production.