2. Production, costs and revenue Flashcards
Firm
A productive organisation which sells its output of goods or services commercially
Marginal returns of labour
The change in the quantity o the total output resulting from the employment of 1 more worker, holding all the other factors of production fixed
Law of diminishing returns
A short term law which states that as a variable factor of production is added to a fixed factor, eventually both the marginal and average returns to the variable factor will begin to fall. It is also known as the law of diminishing marginal productivity
Average returns of labour
Total output divided by the total number of workers employed
Total returns of labour
Total output produced by all the workers employed by a firm
Productivity
Output per unit of input
Labour productivity
Output per worker
Returns to scale
The rate by which output changes if the scale of all the factors of production is changed
Plant
An establishment, such as a factory, workshop or retail outlet, wound and operated by a firm
Increasing returns to scale
When the scale of all the factors of production employed increases, output increases at a faster rate
Constant returns to scale
When the scale of all the factors of production employed increases, output increases at the same rate
Decreasing returns to scale
When the scale of all the factors of production increases, output increases at a slower rate
Economy of scale
As output increases, long run average cost falls
Diseconomy of scale
As output increases, long run average cost rises
Long run average cost
Cost pre unit of output incurred when all factors of production or inputs can be varied
Optimum firm size
The size of firm capable of producing at the lowest average cost and thus being productively efficient
Minimum efficient scale
The lowest output at which the firm is able to produce at the minimum achievable LRAC
Internal economies and diseconomies of scale
Changes in long run average costs of production resulting from changes in the size or scale of a firm or plant
External economy of scale
A fall in long run average costs of production resulting from the growth of the market or industry of which the firm is a part
External diseconomy of scale
An increase in long run average costs of production resulting from the growth go the market of industry of which the firm is a part
Marginal cost
Addition to total cost resulting from producing one additional unit of output
Average fixed cost
Total cost of employing the fixed factors of production to produce a particular level of output, divided by the size of output:
AFC = TFC / Q
Average variable cost
Total cost of employing the variable factors of production to produce a particular level of output, divided by the size of output: AVC = AFC + AVC
Average total cost
Total cost of proving a particular lee of output, divided by the size of output. Often called average cost: AFC + AVC
