Theory of the Firm Flashcards
3 inputs used in the production process
Land Labour Capital
Define total output
Total quantity of products produced (total product)
Define average output
Total output/Total input (average product)
Define marginal output
addition to total output by using an extra unit of input E.G. Labour
Define the short-run (SR)
The time period where at least one factor of production is fixed.
Define the Long-run (LR)
A time period in which all factors of production are variable.
What is the Law of diminishing returns
As you add a variable factor of production to fixed ones marginal out put will rise then fall.
Define Increasing returns of scale
When the % change in output is larger than the % of input
Define Constant returns of scale
% change of output is equal to % change in inputs
Define Decreasing returns of scale
% change of output is less than % change of input
Define Fixed Cost (FC)
Costs that don’t vary with the level of output e.g. rent
What does the fixed cost diagram look like
What is avergae fixed costs?
Fixed cost devided by total output.
what does the Average fixed cost diagram look like
What are variale costs?
Costs that change with output e.g. wages
What does average total cost and average variable cost look like on a diagram?
what does the margional cost diagram look like?
How would you show sale maximisation on a graph
