Theory of firm Flashcards
(21 cards)
What is the Short Run?
The time period where there is at least one fixed factor of production that cannot be changed
What is the Long Run?
The time period where all factors of production can be changed
What is Total product (TP)?
The total quantity of output produced
What is Average product (AP)?
Total product/labour; output per unit of variable factor (labour) used
What is Marginal Product (MP)?
ΔTotal Product/ΔLabour; extra output from one more unit of variable factor (labour) used
What are Explicit costs?
Costs that involve a direct monetary payment by a firm to acquire factors of production.
What are Implicit costs?
The opportunity cost of using factors of production owned by the firm
What are Total costs (TC)?
Fixed costs + variable costs = economic costs
What are Average costs?
Total costs / total product; average cost of one unit of output produced
What are Marginal costs?
ΔTotal Costs/ΔTotal Product; extra cost of producing one more unit of output
What are Total fixed costs (TFC)?
Costs incurred from the utilisation of fixed factors of production
What are Total variable costs (TVC)?
Costs incurred from the utilisation of variable factors of production
What is Constant returns to scale?
Doubling all inputs exactly doubles output (LRAC is constant)
What is Increasing returns to scale?
Doubling all inputs more than doubles output (LRAC falls)
What is Decreasing returns to scale?
Doubling all inputs less than doubles output (LRAC rises)
What is Long Run Average Cost (LRAC)?
The long run average cost represents the lowest possible average cost attainable at each output level when all factors of production are variable
What are Economies of scale (EOS)?
Fall in average costs when a firm achieves a larger scale of production (increase all inputs)
What are Diseconomies of scale (DEOS)?
Rise in average costs when a firm achieves a larger scale of production (increase all inputs)
What is Total revenue?
Total collections from the sale of output (price x quantity)
What is Average revenue?
Total revenue/total output; average revenue earned from one unit of output sold
What is Marginal revenue?
ΔTotal Revenue/ΔOutput; extra revenue from one more unit of output sold
