T4 - Law of diminshing returns Flashcards
What is very short run
Where factors are fixed (one day)
What is the short run
Where one factor is atleast fixed, 4 to 6 months
What is the long run
Where all factors are varable - 6 months to a year
What is the very long run
Where all factors are variable adn additional factors such as tech can chaneg, several years
Features of very short run
Cant ask workers to work last min
Cant get more stock
Can only really change price etc to cater for demand
Features of short run
One factor is fixed, eg can hire more workers but not get more machinery
There is diminshing marginal returns and marginal costs increase quickly
Prices and wages out of equilibrium (firms dont have the capacity to respond to changes in demand)
Features of long run
The firms has time to grow and respond to changes in demand
Firms can leave or enter markets
Prices hav time to adjust
Price elasticity can vary
Features of very long run
New tech making current processes outdated
Gov policy changing reducing TU power
Social change
What is increasing marginal returns
The addition of an ectra variable factor adds more output than the previous factor
What is average product/returns
Total products/Number of workers
What is total return
Total amount being produced given the amount of resoruces
What is optimal output
Producing at lowest average costs
What is productive efficiency
When a firm operates at the min average costs producing the max output
What is depreciation
The fall in value of an asset during its working life
What is the law of diminishing returns
When one factor is added to a set of fixed factors, total output will eventually rise then fall
