BSB113 notes wk 5 and 6.docx

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Queensland University of Technology
Management and Human Resources

BSB113 Economics notes from wk 5 and 6 Week 5 Technology, production and costs Economists’ view of the activities of a firm  Firms use inputs to produce outputs  Technology - Is the processes a firm uses to turn inputs into outputs of goods and services  Technological change - Results in a change in the ability of a firm to produce a given level of output with a given quantity of inputs The Short and Long Runs  Short run - The period of time during which at least one of the firm’s inputs is fixed  Long run - A period of time long enough to allow a firm to vary all of its inputs, to adopt new technology, and to increase or decrease the size of its physical plant Costs in the short and the long run  Total cost (TC) - The cost of all the inputs a firm uses in production  Variable costs (VC) - Costs that change as the quantity of output changes  Fixed costs (FC) - Costs that remain constant as quantity of output changes  Total costs = fixed cost + variable cost - TC=FC+VC Implicit and explicit cost  Opportunity cost - The highest-valued alternative that must be given up to engage in an activity  Explicitly cost (Wages, electricity, lease) - A cost that involves spending money - Rules of accounting generally require that only explicitly costs are recognized for the purposes of companies’ financial records  Implicit cost (Salary and interest) - A non-monetary opportunity cost - These cost do not represent payments that were actually made - But they are real costs that are incurred Economists – firm’s production  Production function - The relationship between the inputs employed by the firm and the maximum output it can produce with those inputs  Factors of production - Natural resources (land) - Labor - Capital - Entrepreneurial ability (entrepreneurship)  Total product - Total output generated from the factors of production employed by a business  Average product - Total output divided by the number of units of the variable factor of production employed  Marginal product - Change in total product when an additional unit
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