Chapter 4: Output and Cost Flashcards
What is long run
Time period when all factors are variable
State of technology constant
What is short run
Time period when there is at least one fixed factor of production
E.g. Physical capital
A firms production in short run follow these assumptions
Fixed factor = capital. Variable factor=labour
Units of labour at equally efficient
Technology is constant
Total product is
Max output a given qty of labour can produce
Marginal product is
Increase in total product when qty of labour increase by one unit
Average product
Output per unit of labour
A firm in short run is subject to
Law of diminishing returns
Law of diminishing states that
Addition units of labour added to fixed capital
Marginal product will fall
Internal economies of scale are
Cost reducing benefits
When expands production
Eg
Interest rate of loans
Large machinery
LRAC will fall
Internal diseconomies of scale
Cost increasing effects of larger scale of production
From
Lack of
Communication
Coordination and control
Explicit cost is
Paid directly in money
Implicit costs
Value of forgone opportunities
Incurred, not paid in money
Accounting profit vs economic profit
Total revenue minus
