M6 Flashcards
involves converting inputs into outputs.
Production
are the resources used in the production process to create goods and services
Inputs
Input types
- labor
- capital
- land
- entrepreneurship
-technology
Natural resources used in production, including minerals, forests, water, and agricultural land.
LAND
Human effort, including physical and mental work, used in the production process.
LABOR
Manufactured resources used in production, including machinery, tools, and buildings.
CAPITAL
The ability to organize and manage the other factors of production, and to take risks in the pursuit of profit.
ENTREPRENEURSHIP
The methods and processes used to transform inputs into outputs.
TECHNOLOGY
sometimes included as part of capital
TECHNOLOGY
are the final goods and services produced from the inputs. They are the results of the production process and are what firms sell to consumers.
OUTPUTS
Types of outputs
- GOODS
- SEVICES
- BYPRODUCTS
Tangible products that can be consumed or used.
GOODS
Intangible products that involve a performance or activity.
SERVICES
Secondary products that are produced alongside the main output.
BYPRODUCTS
are resources used in the production of goods and services.
FACTORS OF PRODUCTION
Two key classifications of production
- FIXED FACTOR
- VARIABLE FACTOR
are inputs that do not change with the level of output.
FIXED FACTOR
They remain constant in the short run, regardless of the quantity of goods or services produced.
FIXED FACTOR
are typically associated with the capacity of a firm and the infrastructure needed for production.
FIXED FACTOR
Characteristics of fixed factor
- CONSTANT IN THE LONG-RUN
- LONG-TERM ADJUSTMENTS
determine the maximum production capacity a firm can achieve in the short run.
FIXED FACTOR
are inputs that change with the level of output.
VARIABLE FACTORS
They can be adjusted in the short run to increase or decrease production levels.
VARIABLE FACTORS
are more flexible and can be scaled up or down based on production needs.
VARIABLE FACTORS
Characteristics of variable factor
- ADJUSTABLE IN THE SHORT RUN
- SHORT-TERM FLEXIBILITY
provide firms with the ability to respond quickly to changes in demand or production requirements.
VARIABLE FACTORS
allow firms to fine-tune production levels and optimize output within the constraints set by fixed factors.
VARIABLE FACTORS
Constant in the short run
FIXED FACTOR
Long-term adjustment
FIXED FACTOR
Determines production capacity
FIXED FACTOR
Adjustable in the short run
VARIABLE FACTOR
Provides short-term flexibility
VARIABLE FACTOR
Sets production capacity limits in the short run
FIXED FACTOR
Adjusted long-term
FIXED FACTOR
○ Labor
○ Raw materials
○ Energy
VARIABLE FACTOR
provide the infrastructure and capacity,
FIXED FACTOR
offer flexibility to adjust production levels based on current needs.
VARIABLE FACTORS
also known as the Law of Diminishing Marginal Returns
LAW OF DIMINISHING RETURNS
fundamental concept in economics that describes how, when increasing quantities of one input while keeping other inputs constant, the additional output (or marginal product) produced by each additional unit of input will eventually decline.
LAW OF DIMINISHING RETURNS
says that after a certain point, adding more of one type of input (like workers) will result in progressively smaller increases in output.
LAW OF DIMINISHING RETURNS
