AP Microeconomics : Production Function Quiz

The production function relates the innate productive characteristics of labor to a fixed amount of capital. Analysis of this relationship is crucial to the understanding of diminishing marginal returns, the marginal cost curve, the shape of the average variable cost curve, and the average product curve. Since the amount of capital is fixed, this is a short-run analysis. A useful way of understanding the relationship between the quantity of labor and output is to say that the curve "increases at a decreasing rate."