3.2.1-2-3 Costs, Revenue, Profit and market structures Flashcards
Define short run
The time period when at least one factor of production is fixed
Define long run
The time period when all factors of production are fixed
Define Total Product
The total output of a firm at a particular level of resource employment
Define Average Product
The output per unit of variable input
How do you calculate Average product
If labour is the variable factor, then the average product is TP/L
Define Marginal Product
The additional output from each extra unit of input
How do you calculate Marginal Product
Change in TP/change in variable input
What is the law of diminishing returns?
The law of diminishing returns states that the more units of variable factor of production that you put in will increase the marginal product up until a certain point where the marginal product decreases and potentially reduces to 0. Diminishing Marginal Returns is when the marginal product begins to fall.
Define Constant Returns to Scale
If all factors of production are doubled, output doubles.
Define Increasing Returns to Scale
If all factors of production doubles, output more than doubles.
Define Decreasing Returns to Scale
If all factors of production doubles, output less than doubles
How do productivity and factor prices affect firms’ costs of production and the choice of factor inputs?
As productivity rises, the firms average cost of production will decrease as each unit of input is contributing more to total output. Investing in capital can increase the productivity of labour, depending on the ratio of capital to labour employed. Factors like wages and capital prices affect costs of production - the higher the prices, the higher the costs.
Define fixed costs
Constant despite the output (rent)
Define variable costs
Vary directly with output (wages)
What is the Total Cost formula?
Total fixed costs + total variable costs
