Unit 2 Flashcards
(40 cards)
Labour productivity
Quantity of units produced by a worker in a given period of time
Specialisation
When a country or firm only focuses on a limited quantity of goods but produces them to a high level of quality.
Division of labour
Breaking up production so each worker only completes a small quantity of tasks.
Short run
The time period in which a minimum of one factor of production is fixed.
In the short run what do we look at…
Marginal product (or returns) of a variable factor of production and the productivity of a firm.
Sunk costs
Costs that the firm has already paid and aren’t recoverable if the firm wishes to leave the industry. Eg. rent or money on new equipment.
Long run
All factors of production are variable.
In the long run we look at…
Returns to scale
Marginal product
The change in output when adding a variable of FoP.
Marginal returns of labour
The change in the quality of total output resulting from the employment of one more worker, holding all other variables constant.
Law of diminishing returns
A short term law which states as a variable FoP is added to a fixed FoP, eventually both marginal and average returns to the variable factor will begin to fall.
Total physical product
- The total output produced by a firm given the factor inputs. Eg. the amount of capital and labour over a period of time.
- Average physical product x Units of variable input
Average physical product
Total output produced/ Units of variable input
Prospective costs
Costs that the firm will take into account when making investment decisions and are avoidable as they’re based on the future.
Marginal costs
The amount added to total costs resulting from producing one extra unit of output.
Increasing returns to scale
Add one more FoP and the output rises faster.
Constant returns to scale
Add one more FoP and you recieve one more unit of output.
Decreasing returns to scale
When the scale of all factors increases, output rises at a slower rate.
Economies of scale
As output increases, long run average costs falls.
Diseconomies of scale
As output increases, long run average costs increases.
Minimum efficient scale
Internal economies of scale have been fully exploited. It’s the lowest level of output required to exploit full economies of scale
How can a firm mover from one SRAC curve to another in the long run?
By increasing capacity and factory size
Where does the optimum firm size occur?
After economies of scales have been gaines but before diseconomies of scales sets in.
Abnormal profit
Profit over and above normal profits. Also known as supernormal profits.
