Production, costs and revenue Flashcards
When is the scale of production fixed
In the short run
Why in the long run can firms alter their scale of production
Because all costs are variable
Define marginal returns
The extra output derived per extra unit of factor employed
Give a real life example of marginal returns
Employing more staff in a small shop will make it overcrowded and reduce the output per unit of labour
Define the average rate of return
The output per worker over time
Define the total return of a factor,such as labour
The total number of units produced by each unit of labour in total
When can the law of diminishing returns ONLY happen
The short run
What is the law of diminishing returns
Over time labour becomes less productive, causing marginal returns to decrease,Therefore an extra unit of labour will add less to total output….. leading to output rising at a lower rate
What is the law of diminishing returns linked to
Labour productivity
What does the law of diminishing returns assume
firms have fixed factor resources in the short run and the state of technology stays the same
What does the returns to scale refer to
The change in output after an increase in input
how do the returns to scale work
When output increases by a greater proportion to the inputs
What are constant returns
when output increases by the same amount that input increases by
