Production, costs and revenue Flashcards
What is the ‘short run’?
The time period in which some imputs, such as capital equipment, are fixed, but labour and raw materials are not
What is the ‘long run’?
The time period in which all factors of production are variable
What is meant by ‘marginal product’?
The units of additional units of output produced per extra unit of input
What does the ‘law of diminishing returns’ state?
Due to insufficient capital, marginal returns will eventually decrease, until the point where an additional unit of input adds zero units of output
The law of diminishing returns only applies in…
The short run
Returns to scale is…
The proportionate change in output resulting from a proportionate increase in all inputs
When do increasing returns to scale occur?
%+Output > %+Input
When do constant returns to scale occur?
%+Output = %+Input
When do decreasing returns to scale occur?
%+Output < %+Input
