Ch.6 Production and costs Flashcards
What are variable factors?
It is an input whose quantity will change when output changes.
What are fixed factors?
It is an input whose quantity will not change when output changes
What are the examples of variable factors?
Electricity, water and food in a restaurant
What are the examples of fixed factors?
Size of the premise.
What is short run?
It refers to a production period with both fixed and variable factors.
What is long run?
It refers to a production period with only variable factors.
How do you calculate average product?
Total product/ Variable factor.
What is the law in short run?
Law of diminishing marginal returns.
What is law of diminishing marginal returns?
It states that when variable factors are added continuously to a fixed amount of fixed factors, the marginal product will eventually decrease, holding all other factors constant.
Why does the marginal product rise when more units of worker are added?
It is because there are too many fixed factors relative to the quantity of worker. Some machinery are idle. Hence, when more workers are added, machinery can be better utilised with marginal product increase.
Why does marginal product decline eventually when worker are added continuously?
As more variable factors are added, the excessive capacity of fixed factor will be fully used. Therefore, the marginal product will eventually decrease.
What are fixed costs?
They are the costs of employing fixed factors. They will not change when output changes.
What are variable costs?
They are the costs of employing variable factors. They will change when output changes.
How to calculate average costs?
Total cost/ Total Product
How to calculate average fixed or variable cost?
Total fixed cost/ Total Product,
Total variable cost/ Total Product.
