Short Run Production and costs Flashcards
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What is the main feature of SR production
Only one factor of production is variable
What is the formula for profit denoted by Pi
Profit(Pi)=TR(total revenue)-TC(total cost)
What is the formula for TR
TR= price x quantity
What are the features of explicit opportunity costs
Require cash to flow out of the firm which couldve been spent on something else
What are the features of Implicit opportunity costs
Owner could’ve done something else with the time/money - doesn’t require cash to flow out of the firm
What is the difference between accounting and economic profit
Accounting profit is the TR - explicit costs
Economic profit is the TR - explicit costs - implicit costs
What does the production function show
How total output changes with Labour L and capital K
What is TPPl
Total physical product of labour - total output produced by the units of labour for a given capital
What is APPl
Average Physical Product of Labour - average output produced by units of labour for a given capital
What is the formula for APPl
APPl = TPPl/L
What is MPPl
Marginal Physical Product of labour - extra output produced by employing another unit of labour for a given capital
What is the formula for MPPl
MPPl = ∆TPPl /∆L = TPP(l+1) -TPPl
What is the law of diminishing returns
When some factors are fixed in the short run then eventually employing another unit of the variable factor will lead to to smaller and smaller increases in output
What graph are APP and MPP plotted on
Levels of output compared to number of workers (amount of labour employed)
What happens at the peak of the MPP curve
Diminishing returns sets in
