3.2.3 Costs Flashcards
Costs of diminishing marginal productivity in short run?
employing an additional factor of production will eventually cause a relatively smaller increase in output. This occurs only in the short run when at least one factor of production is fixed (e.g. capital) and so increasing a variable factor (e.g. labour) will result in the extra workers getting in each other’s way, reducing productivity.
Costs of diminishing marginal productivity in long run?
In the long run, all inputs are variable. Since diminishing marginal productivity is caused by fixed capital, there are no diminishing returns in the long run.
The law of diminishing returns
The decrease in marginal output of a production process as the amount of a single factor of production is incrementally increased, holding all other factors of production equal.
Total cost formula
TFC (total fixed cost) + TVC (total variable cost).
Total fixed cost
TFC = TC - TVC
Total variable cost
Total output quantity x average variable cost
Average (total) cost
AC = TC/Q
Average fixed cost
Dividing the total fixed costs by the number of production units over a fixed period
Average variable cost
TVC/Q
Marginal cost
(Change in Costs) / (Change in Quantity)
Relationship between marginal product and marginal costs?
as one increases, the other will automatically decrease proportionally and vice versa.
Relationship between average productss and average cost?
The harder it is to produce something, for example, the more labor it takes, the higher the average cost of producing it, and vice versa.
