Micro G

what is the short run

when there is at least one fixed factor of production

what are usually the fixed factors of production

capital and land

when does law of diminishing returns occur

in the short run only

law of diminishing returns definition

in the short run when variable factors (labour) of production are added to a stock of fixed factors of production (capital) total/marginal product will initially rise (Division of labour and specialisation) then fall

total product definition

the total output generated from factors of production

average product (productivity) definition

the total output divided by the number of units of the variable factor of production employed

marginal product definition

The extra output generated by hiring one additional worker.

draw a diagram representing marginal product, average product, and total product

explain the law of diminishing returns

when there are variable factors of production being added initially there is an increase in labour productivity due to specialisation and the under utilisation of fixed factors of production (capital). when too many variable factors of production are employed the fixed factor of production (capital) constrains labour.

long run definition

a period of time where all factors of production are variable allowing business to benefit from economies of scale

increasing returns to scale definition

when the scale of all the factors of production employed increases, output increase by a greater proportionate amount

constant returns to scale definition

when the scale of all the factors of production employed increase, output increases by the same proportion

decreasing economies of scale

when the scale of all the factors of production employed increase, output increases by a less than proportionate amount.

how does increasing returns to scale impact average costs in the long run

average costs fall in the long run (economies of scale)

how do constant returns to scale impact average cost of production in the long run

average costs are constant in the long run

how do decreasing returns to scale impact the average costs of production in the long run

average costs rise in the long run (diseconomies of scale)

what are examples of implicit costs

opportunity costs

what are the two categories of explicit costs

fixed costs and variable costs

what are the five fixed costs

rent salaries interest on loans advertising business rates v

what are the four examples of variable costs

wages utility bills raw materials costs transport costs

what is the graph for total fixed cost, total cost and total variable cost

what is the graph for marginal cost and average cost