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Description
Flashcards by bella.calonje, updated more than 1 year ago
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Created by bella.calonje
over 10 years ago
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| Question | Answer |
| Short run Production | At least one FOP is fixed- all production takes place in the short run |
| Long run production | all factors of production are variable but the state of technology is fixed- all planning takes place in the long run |
| Define Total Product | total product is the total output that a firm produces using its fixed and variable factors in a given time period |
| Define Average Product | output that is produced on average by each unit of the variable factor- AP= TP/V |
| Define Marginal product | MP= change in total product/ change in variable |
| Define eventually diminishing marginal returns | as extra units of a variable factor are added to a given quantity of a fixed factor, the output from each additional unit of the variable factor will eventually diminish |
| Define eventually diminishing average returns | As extra units of a variable factor are added to a give quantity of a fixed factor, the output per unit of the variable factor will eventually diminish |
| Distinguish between explicit and Implicit costs | Explicit costs are any costs to a firm that involve the direct payment of money Implicit costs are the earnings that a firm could have had if it had employed its factors in another use of if it had hired out or sold them to another firm |
| Total fixed cost | the total costs of fixed assets that a firm uses in a given time period |
| Total variable costs | total cost of the variable assets that a firm uses in a given time period |
| Total Cost | is the total cost of all the fixed and variable factors used to produce a certain output (fixed + variable) |
| Average fixed cost | TFC/Q |
| Average variable cost | TVC/Q |
| ATC | TC/Q |
| Marginal Cost | change in total cost/ change in quantity |
| Decreasing returns to scale | when long run average cost is rising as output increases |
| Economies of Scale | economies of scale are any decreases in long-run average costs that come about when a firm alters all of its factors of production in order to increase its scale of output |
| total revenue | P x Q |
| Average revenue | Total revenue/q |
| marginal revenue | change in total revenue/ change in quantity |
| explain the shut-down price | when a firm is able to cover their variable costs in the short run but not their fixed costs |
| Explain the break even price | is when a firm is able to make normal profit in the long-run, it will cover all of its costs including its opportunity costs |
| Define Diseconomies of scale | any increases in long run average costs that come about when a firm alters all of its factors of production in order to increase their scale of output |
| Why are Short Run cost curves U- Shaped | because of the hypothesis of diminishing returns- diminishing average returns explain the SR average variable cost curve and eventually diminishing marginal returns explain the shape of the short run marginal cost curve |
| Why are Long- Run Cost curves U-Shaped? | because of economies and diseconomies of scale |
| What are the goals of the firm other then profit maximisation? | revenue maximisation growth maximisation satisficing corporate social responsibility |
| Increasing returns to scale | when long run unit costs are falling as output increases- a given percentage increase in FOPs will lead to a greater percentage increase in output reducing long run average costs |
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