The theory of production Flashcards
Total costs
fixed costs+variable costs
Fixed costs
costs of production that do not vary as output changes.
Variable costs
costs of production that vary with output.
Short run
period during which fixed costs and the scar of production remain fixed.
Long run
period of time during which all factors become variable and the scale of output can change.
Marginal product
the output added by the extra worker or unit of a factor.
Increasing marginal returns
where the addition of an extra variable factor adds more output than the previous variable factor.
Average product
the total product divided by the number of workers.
Lw of diminishing marginal returns
where increasing amounts of a variable factor are added to a fixed factor ad the amount added to total product by each additional unit of the variable factor eventually decreases.
Optimal output
the ideal combination of fixed and variable fsctos to produce the lowest average cost.
Productive efficiency
when a fir operates at minimum average total cost, producing the maximum possible output from inputs into the production process
Depreciation
in relation to fixed assets, a fall in the value of an asset during its working life.
Semi-variable costs
costs which have both a fixed and variable element, e.g. landline telephone usage.
Increasing returns to scale
where an increase in factor inputs leads to a more than proportionate increase in outputs.
Decreasing returns to scale
where an increase in factor inputs leads to a less than proportionate increase in factor outputs.
