Production Flashcards
Isoquant
All combination of inputs which produce a given output
Marginal rate of technical substitution
The rate at which one factor can be replaced with another
MRS= MPPx/MPPy
Very short run
All factors and output is fixed
Short run
At least one factor is fixed
Long run
All factors are varied
Very long run
Allows for technological progress
Isocost curve
Combination of inputs which maintain a given level of cost
Envelope curve
The long run average cost curve drawn as the tangency points of a series of short-run average cost curves
Expansion path
Traces minimum cost combination of all factors of output
Economies of scale
Increasing scale of production leads to a lower cost per unit
Reasons for economies of scale
Specialisation and the division of labour
Indivisible/lumpy inputs
The container principle - capital equipment tends to cost less per worker at large sizes
By products can be sold
Multi-stage production
Rationalisation
Spread overheads
Financial economies
Plant economies of scale
Economies of scale from a larger factory
Economies of scope
Lower unit cost from other firms economies of scale
Diseconomies of scale
Increasing average costs from higher production
Reasons for diseconomies of scale
Management and co-ordination problems
Complex mass production
Interrelationships relations
Productive efficiency
The least cost combination of factors for a given output or the maximum output for a given cost of production
Total physical product
The total output of a product per period of time that is obtained from a given amount of inputs
=dQ/dX
Total revenue product
TPP*MR
Technical efficiency
The firm is producing the maximum possible level of output given technological constraints
Explicit cost
Cost of actual money transfer
Implicit cost
costs which do not involve a direct money transfer
The Opportunity cost
Hog cycle
Measures the time lag in supply
