-all firms in all markets make a decision about quantity to produce and price to charge
-goal: attain maximum profit
Short Run:
-time frame of at least one factor of production is fixed
-plant: fixed factor of prod
...
-all firms in all markets make a decision about quantity to produce and price to charge
-goal: attain maximum profit
Short Run:
-time frame of at least one factor of production is fixed
-plant: fixed factor of production (generally capital, land, entrepreneurship)
-production and labour variable factors of production
-easily reversed (generally by changing amount of labour it hires)
Long Run:
-quantities of all factors of production can be varied
-not easily reversed
-sunk cost: past expenditure on a plant that has no resale value, irrelevant to current decisions Short Run Technology Constraint:
-describe relationship between output and quantity of labour employed using three concepts: total product, marginal product, average product
-can be explained using product schedule or product curve
-total product: maximum output that a given quantity of labour can produce
-marginal product: increase in total product that results from one-unit increase in quantity of labour employed (increases then decreases), marginal product of 3rd worker is increase from 2 to 3
-average product: how productive workers are in general (increases then decreases)
Product Schedule:
-shows how quantity of sweaters produced increases as Campus Sweaters employs more workers (productivity of labour)
Product Curves
Total Product Curve:
-graph of total product schedule
-first increasing (becomes steeper), then becomes less steep
-points above curve are unattainable, below curve are attainable but inefficient
-points on curve are technologically efficient
Marginal Product Curve:
-slope of total product curve
-each company’s curves are different, but have similar shape
-increasing marginal returns (marginal product of additional worker exceeds marginal product of previous worker) initially from increased specialization, division of labour
-diminishing marginal returns eventually from the fact that more and more workers are using same capital, working in same space
Law of Diminishing Returns:
-as firm uses more of a variable factor of production with a given quantity of fixed factor of production, marginal product of variable factor eventually diminishes
Average Product Curve:
-largest when average product and marginal product are equal
-average product increasing when marginal product exceeds average product
-average product decreasing when marginal product is less than average product
..................................................CONTINUED..................................
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