6 Production Flashcards
process of combining the factors of production to make goods and services
production
factors of production are also known as
inputs
factors of production
capital, entrepreneurship, land, labor (CELL)
topsoil and all natural resources
land
people with skill and abilities
labor
paid for what you can do
unskilled labor
repetitive, mostly physical labor
unskilled labor
no training
unskilled labor
paid for what they know and can do
skilled labor
has training, education, certification
skilled labor
mental skills
professional labor
pay for mostly knowledge with some physical labor
professional labor
tools, machinery, equipment
capital
discover profitable opportunities and be effective in pursuing them
entrepreneurship
land
rent
labor
wage
capital
interest
entrepreneurship
profit
does not change with the level of production
fixed cost
rent, interest, depreciation expense, indirect labor (people who don’t produce the products)
fixed cost
costs that change with the level of production
variable cost
raw materials, direct labor (producing products), utilities
varable cost
if more is produced, variable cost ____, if less is produced, variable cost ____
↑ ↓
sum of fixed and variable cost
total cost
expenses that aren’t just for one thing
overhead cost
needed to operate
operating cost
you are not yet capable of manipulating the factors of production
short run
factors of production (short run)
fixed - most other factors
variable - only one or two factors
you are capable of manipulating the factors of production
long run
factors of production (long run)
fixed - none
variable - all factors
AFC
TFC ÷ TP
AVC
TVC ÷ TP
ATC
TC ÷ TP
MC
ΔTC ÷ ΔTP
shows relationship between quantity of inputs and outputs
production function
TQ of output produced for given quantity of input
total product
additional output from additional input
marginal product
output per each input of unit
average product
TP₂
TP₁ + MP
AP
TP ÷ VI
MP
TP₂ - TP₁
law of variable proportions is also known as
law of diminishing returns
if a producer increases the units of a variable factor while keeping other factors fixed, then initially the TP increases at an ↑ rate, then at a diminishing rate, then at a ↓ rate
law of diminishing returns/law of variable proportions
you cannot use in the long-run since all factors become variables
law of diminishing returns/law of variable proportions
input ↑ = TP ↑ MP ↑
increasing returns
for every additional input, both TP and MP ↑
increasing returns
input ↑ = TP ↑ MP ↓
decreasing returns
for every additional input, TP ↑ but MP ↓
decreasing returns
input ↑ = TP ↓ MP -
negative returns
for every additional input, TP ↓ and MP -
negative returns
owned and managed by a single individual
single proprietorship
advantageous in decision-making but limited in terms of production
single proprietorship
owned by two or more individuals who agree to put their resources together to put up a business
partnership
can be limited or general
partnership
requires contract/formal agreement
partnership
owned by many individuals known as stockholders
corporation
has separate legal identity
corporation
can be open/closed
corporation
main objective is service to its members rather than profit
cooperative
should have minimum of 15 members
cooperative
RA 6938
cooperative code of the philippines
