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Past expenditure on a plant that has no resale value
relationship between output and the quantity of labor employed can be described by using 3 diff. concepts
- 1) Total product
- 2) Marginal product
- 3) Average product
- These concepts can be illustrated by product schedules or product curves
1) Total product
2) Marginal product
3) Average product
- 1) the maximum output that a given quantity of labor can produce
- 2) the increase in total product that results from a one-unit increase in the quantity of labor employed with all other inputs remaining the same
- 3) total product divided by the quantity of labor employed - tells how productive workers are on the average
The law of diminishing returns
As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.
Relationship between output and cost can be described using three cost concepts
- 1) Total cost
- 2) Marginal cost - an increase in total cost from a one-unit increase in output (increase in total cost/increase in output)
- 3) Average cost - U shape comes from spreading total fixed cost over a larger output and eventually diminishing returns
The position of a firm's short-run cost curves depends on two factors:
- 1) technology
- 2) price of factors of production
marginal product of capital
change in the total product divided by the change in capital when the quantity of labor is constant
long-run average cost curve
- relationship between the lowest attainable average total cost and output when both the plant size and labor are varied.
- tells firm plant size and quantity of labor to use at each output to minimize cost
diseconomies of scale
features of a firm's technology that lead to rising long-run average cost as output increases
constant returns to scale
features of a firm's technoogy that lead to constant long-run average cost as output increases. when constant returns to scale are present the LRAC curve is horizontal.
minimum efficient scale
the smallest quantity of output at which long-run average cost reaches its lowest level
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