L3 Firms And Production Flashcards
Firm
Organisation that converts inputs into outputs
Private sector
Firms owned by individuals or other nongovernmental entities whose owners try to earn a profit
Public sector
Firms owned by gov or gov agencies
Non profit
Not gov owned and not intended to earn profit
Sole proprietorships
Firms owned and run by one individual
General partnerships
Businesses jointly owned and controlled by 2 or more people operating under a partnership agreement
Limited liability
Personal assets of owners cannot be taken to pay debts even if it goes bankrupt
Objectives of firms
Maximise profit
In order to do so, firm must produce as efficiently as possible
They do this if they can produce its current level of output with fewer inputs, given existing knowledge about tech and organisation of production
Firm uses teach of production process to transform inputs or FoPs into outputs
Factors of production
Capital (K) long-lived inputs
Labour (L) human services
Materials (M) raw goods and processed products
Production function
Relationship between the quantities of inputs used and the max quantity of output that can be produced given current knowledge about tech and organisation
Short run
Period of time so brief that at least one FoP cannot be varied practically
Fixed input
FoP that cannot be varied practically in the SR
Variable input
FoP whose quantity can be changed readily by the firm during the relevant time period
Long run
Lengthy enough period of time that all inputs can be varied
Total product
Amount of output that can be produced by given amount of labour
