3 - Production and Costs

Question 1

What are Factors of Production? + Examples

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Answer 1

Factors at least partly exhausted in the production process | also: input factors

• labor | work done by employees (hours, headcounts, FTEs)
• capital | goods not completely exhausted in the production process (structures and equipment, machinery etc.)
• land | ground, soil (nowadays part of capital)
• natural resources, energy, intermediary goods| goods completely exhausted in the production process
• knowledge capital / know-how | intangible, codified
• human capital / tactic knowledge | not codified

Question 2

What is…

1. a production set?
2. a production function? + Examples

Answer 2

1. output possible with given factors of input
2. maximum output for given factor inputs or combinations of factor inputs

One factor: q = F(L)
Two factors: q = F(K,L)
Multiple factors: q = F(K,L, …)

Question 3

What is a Short-Run Production?

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Answer 3

• period of time in which at least one factor of production cannot be changed
• production with at least one fixed factor (mostly K)
• changes in capacity utilization

Question 4

What is a long-run production?

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Answer 4

• period of time in which all factors of production can be changed
• production with no fixed factor
• changes in capacity and capacity utilization
• even closing the plant possible

Question 5

What does Average Product / Average Productivity mean?

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Answer 5

• output quantity per unit of labor (qty per head, qty per hour)
• average product of labor
• slope of ray out of the origin
• APL = q / L

Question 6

What does Marginal Product / Marginal Productivity mean?

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Answer 6

• output quantity created by the last unit of labour (qty per head, qty per hour)
• marginal product of labour
• first derivative of the production function
• slope of the production curve / output curve
• MPL = [delta]q / [delta]L = F´L

Question 7

What are fixed costs?

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Answer 7

• costs independent of quantity produced
• costs occured even if no production
• FC

Question 8

What are variable costs?

Answer 8

• costs changing with quantity produced
• VC

Question 9

What are Total costs and whats the Equation?

Answer 9

• total economic costs of a production
• TC = FC + VC

Question 10

What are Average Fixed Costs?

Answer 10

AFC(q) = FC/q
- costs of the fixed factor of production divided by the quantity produced

Question 11

What are average variable costs?

Answer 11

AVC(q) = VC (q) / q
- variable costs per unit of output produced

Question 12

What are Average Totasl Costs?

Answer 12

ATC (q) = AVC (q) + AFC (q)
- total costs per unit of output produced

Question 13

What are Marginal Costs?

Answer 13

MC(q) = TC´(q) | VC´(q)
- additional total costs ( additional variable costs) incurred by producing an additional unit of outpur
- saved total costs (saved variable costs) incurred by producing a unit of output less