Theory Of The Firm: Costs Flashcards
Short-Run definition
When at least one factor of production is fixed
Long-run definition
When all factors of production are flexible
If a manufacturing firm decides that it wants to increase production in the short-run, what can it do?
The business can only add labour in the short run, it cannot change its level of capital.
What is the law of diminishing marginal returns?
A firm in the short-run will eventually experience diminishing marginal returns.
Economies of scale definition
Decreasing average costs due to an increase in the size and scale of a firm
What is managerial economies?
Employing specialist staff to oversee different operations
What is purchasing economies?
Larger firms can often purchase supplies at lower cost due to bulk orders.
What is technical economies?
The ability to purchase better machinery and implement large scale production processes can increase efficiency.
What is risk-bearing economies?
Larger firms are able to attempt to market riskier products as failure has less effect.
What is financial economies?
Larger firms often find it easier and cheaper to borrow money.
What is marketing economies?
The cost per unit output of marketing costs is often smaller for larger firms.
External economies of scale definition
Decreasing average costs due to the positive externalities of an industry or economy growing in size.
What is a monopoly?
Where a single firm controls all or nearly all of a market.
Diseconomies of scale definition
Increasing average costs due to an increase in the size and scale of a firm.
