Textbook Notes (363,063)
Economics (800)
ECON 1050 (379)
Chapter 11

# Economics Chapter 11 Outputs and Costs.docx

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School
University of Guelph
Department
Economics
Course
ECON 1050
Professor
Semester
Winter

Description
Economics Chapter 11 Outputs and Costs Short run- time frame in which the quantity of at least one factor of production is fixed. For most firms, capital, land, entrepreneurship is fixed factors of production and labour is the variable factor Fixed factors of production are called firm’s plant. In short run, plant is fixed. To increase output in short run, firm must increase quantity of a variable factor (usually labour) Short run decisions are easily reversed Long run- time frame in which quantities of all factors of production can be varied A period in which the firm can change its plant To increase output in long run, firm can change plant as well as quantity of labour Long run decisions are not easily reversed Sunk Cost: past expenditure on a plant that has no resale value The only costs that influence its current decisions are the short-run cost of changing labour inputs and long-run cost of changing plant Short-Run Technology Constraint - to increase output in short run, firm must increase quantity of labour employed describe relationship between output and q/ of labour employed by using 3 concept 1. total product 2. marginal product 3. average product Product schedules - Total product: maximum output that a given quantity of labour can produce - Marginal product: increase in total product that results form a one-unit increase in the quantity of labour employed with all other inputs remaining the same - Average product: of labour, is equal total product divided by the quantity of labour employed Product Curves - graphs of the relationships between employment and the three product concepts - they show how total product, marginal product and average product change as employment changes Total Product Curve - Graph of the total product schedule - Similar to the production possibilities curve - It separates the attainable output levels from those that are unattainable Marginal Product Curve - the height of a bar measures marginal product - also measured by slope of total product curve - slope of curve is the change in value of the variable measured on the y-axis- output- dicided bt change in variable measured on the x-axis (labour) as we move along curve - height of curve measures slope of the total product curve at a point Increasing Marginal Returns - occur when marginal product of an additional worker exceeds the marginal product of the previous worker - arise from increased specialization and division of labour in the production process Decreasing Marginal Returns - all production processes eventually reach a point of diminishing marginal returns - occur when the marginal product of an addition worker is les than the marginal product of the previous worker - arise from the fact that more and more workers are using the same capital and working in the same space - Law of Diminshing 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 Average Product Curve - relationship between average product and marginal product - average product is largest when average product and marginal product equal - marginal product cuts average product curve at the point of maximum average product - for the number of workers at which marginal product exceeds average products, average product is increasing - for the number of workers at which marginal product is less than average product, average product is decreasing - relationship between average product and marginal product is a general feature of the relationship between the average and marginal values of any variable Short-Run Cost -
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