Output and Cost Flashcards
What does short run refer to?
It is the time period when there is at least one fixed factor of production.
What does long run refer to?
It is the time period when all factors are variable with the state of technology constant.
What does total product (TP) mean?
It is the maximum output a given quantity of labour can produce.
What does marginal product (MP) mean?
It refers to the increase in TP when the quantity of labour is increased by one unit.
What does the Law of Diminishing Returns mean?
When additional units of labour are added to a fixed amount of capital, the marginal product of labour will fall.
What is the formula for Total Cost?
Total Cost = Total Fixed Cost + Total Variable Cost
What are Total Fixed Costs?
Payment for the use of fixed factors (eg. Bank Loan)
What is the Total Variable Cost?
Payment for the use of variable factors (eg. workers’ wages and raw materials)
What is the formula for Average Total Cost?
- Average Fixed Cost + Average Variable Cost
OR - Total Cost/Quantity
What is a Marginal Cost (MC) ?
It is the additional cost from producing one more unit of output and it usually falls first and then increases as output increases.
How do we calculate Marginal Cost?
Change in Total Variable Cost / Change in Output.
What does Internal Economics of scale refer to?
The cost-reducing benefits which the firm can enjoy when it expands its scale of production.
(eg. employing specialised human capital like Social Media Marketing Executives)
What does Internal Diseconomics of scale refer to?
It refers to the cost-increasing effects of a larger scale of production.
(eg. Communication problems in the company)
What are the differences between explicit costs and implicit costs (opportunity costs) ?
Explicit costs are paid for directly in money while implicit costs (opportunity cost) are costs incurred but not paid for directly in money.
What is the formula for Average Fixed Costs?
Total Fixed Costs / Quantity
