Production And Costs Flashcards
What is production
The output of goods and services produced by businesses
What is short run production
At least one fixed factor input- usually capital such as machinery and technology
What is long run production
All of the factors of production can change - allowing a business to change the scale of its operations
What is productivity a measure of
The efficiency of a factor input - it is the output per person employed
What is marginal product
Change in total output from adding one extra unit of labour
What is average product
Total output divided by the total units of labour employed
When does diminishing returns occur
When the marginal product of labour starts to fall
Why does the law of diminishing returns occur
Because factors of production such as labour and capital inputs are not perfect substitutes for eachother (resources used in producing one type of product are not as efficient when switched to the production of another good)
