theory of production Flashcards
what is the purpose of the theory of production
- explains how businesses converts inputs like land, labor, capital into goods or services
- help optimize production processes, maximizing output, minimizing costs and allocating resources efficiently
what are the factors of production
- land
- labor
- capital
- entreprenuership
it is the combination of input to get the number of outputs
production function
what is the total product (Q)
inputs Cush as land labor and capital
formula for average product
AP= TP /Q
formula for marginal product
MP= TP2 - TP1 / Q2 - Q1
what law states that there will come a time that the output decreases as you increase in workers due to the lack of tools or machines ect..
law of diminishing marginal utility
what is the difference between short term production from long term production
short term production is where at least one variable is constant
while long term production is where inputs can be adjusted ( factory production)
what stage of production is below?
- most growth in a company’s production
-increase in the marginal product
-highest point in the marginal product is met
stage 1
what stage of production is below?
- average product rate reaches its peak
- marginal product starts to decrease
- total product continues to increase
-most important stage to sustain
stage 2
what stage of production is below?
- marginal product starts to turn negative
- the total product begins to decrease
-avg product continues to decrease
stae 3
what are the two types of costs and explain them ?
- explicit costs
- usual costs in producing goods such as salaries, prices of raw materials etc - implicit costs
- prices that we don’t consider much but still relevant, like an oven you already had or a building before your business
what is total product (Q) in formula costing?
total quantity of OUTPUT ( pending on the factors of production)
what is total fixed cost
(TFC) total cost for the FIXED INPUTS like rent
what is the total variable cost?
(TVC) total cost for the variable inputs that varies by the total number of output ( usually solved by multiplying no. workers by their salary etc)
what is the total cost and its formula
(TC) overall cost of the output
TC = TFC + TVC
what is the average fixed costs and its formula
(AFC) per unit cost of fixed inputs
AFC = TFC / Q
what is the average variable costs and its formula
(AVC) per unit cost of the variable costs
AVC= TVC / Q
what is average costs and its formula
( AC) per unit cost
AC = TC / Q
what is marginal costs (MC)
increase in total cost
MC= TC2 - TC1 / Q2 - Q1
this law states that when the quantity of one factor of production is increased, while keeping all the other factors constant, it will result in the decline of the marginal product of that factor
law of variable proportion
what is total revenue and it’s formula
overall income based on the quantity of products
TR = price x quantity
what is average revenue and its formula
revenue gained per product
AR = TR/Q
what is marginal revenue and its formula
additional revenue gained per product
MR = TR2 - TR1 / Q2 - Q1
