WEEK 10: PRODUCTION AND COSTS

SHOR

T
The time frame in which the quantities of some resources are fixed
a firm can usually change the quantity of labour it uses
but not its technology and quantity of capital

RUN:
to increase the output of a fixed plant, a firm must increase the
quantity of labour it employes

LONG

RUN:
the time frame in which the quantities of all resources can be
changed/varied
in the log run, a firm can change both the quantity and labour and
the quantity of capital

Total

produ
the quantity of a good produced in a given period

ct:
Avera
geAVERAGE PRODUCT = TOTAL PRODUCT/QUANTITY LABOUR
EMPLOYED

produ
Margin

ct:
TOTAL PRODUCT/CHANGE IN QUANTITY OF LABOUR

al
Change in total cost that results rom one unit increase in input
MC curve change in total cost that results from one unit increase in
output
produc
t:
 Total

cost
The cost of all the factors of production used by a firm

curve:
Total cost increases as output increases

Avera
ge
Total fixed cost per unit of output

cost
Dimin
curve:
ishing
/decre
asing
It occurs when the marginal product of an extra worker is less thant
the marginal product of the previous worker

margi
Econo
nal
mies
Features of a firms technology than make AVG total cost decreases

retur
as output(production) increases

of
Greater specialisation of both capital and labour

ns:
scale: