Theory Of Production Flashcards
Average product
The total product divided by the number of workers
Increasing marginal returns
Where the addition of an extra variable factor add more output than the previous variable factor
Law of diminishing marginal returns
Where increasing amounts of a variable factor are added to a fixed factor and the amount added to the total product by each additional unit of the variable factor eventually decreases
Optimal output
The ideal combination of fixed and variable factors to produce the lowest average cost
Productive efficiency
When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process
Depreciation
In relation to assets, a fall on my the value of an asset during its working life
Short run
The period during which fixed costs and the scale of production remain fixed, and at least one factor of production is fixed, normally land or capital
Long run
Period of time during which all factors become variable and three scale off output can change
Marginal product
The output added by the extra worker or unit of a factor
Decreasing returns to scale
Where an increase in factor inputs leads to a less than proportionate increase in factor outputs
Increasing returns to scale
Where an increase in factor inputs leads to a more than proportionate increase in outputs
Constant returns to scale
Where an increase in factor inputs leads to a proportional increase in factor outputs
Minimum efficient scale
The lowest point on the long-run average total cost curve and is also known as the output of long-run productive efficiency
