1 - the theory of production Flashcards
total costs
fixed costs plus variable costs
fixed costs
costs of production that do not vary with output
variable costs
costs of production that vary with output
short run
period during which at least one factor is fixed and the scale of production remains fixed
long run
period of time during which all factors become variable and the scale of output can change
marginal product
the output added by the extra worker or a unit of a factor
Increasing marginal returns
where the addition of an extra variable factor adds more output than the previous variable factor.
Average product
the total product divided by the number of workers
law of diminishing marginal returns
where increasing amounts of a variable factor are added to a fixed factor and the amount added to total product by each additional unit of the variable factor eventually decreases.
optimal output
the ideal combination of fixed and variable factors to produce the lowest average cost
productive efficiency
when a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process.
depreciation
in relation to fixed assets, a fall in the value of an asset during it’s working life
semi-variable costs
costs which have both a fixed and variable element.
average fixed cost
total fixed costs divided by the number produced
average variable cost
total variable costs divided by the number produced.
