ECON102 Chapter Notes - Chapter 1.5: Average Cost, Average Variable Cost, Diminishing Returns

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Corey Van De Waal

Document Summary

1. 5 theory of the firm (hl): production and costs. Long run: period of time in which all factors of production are variable. All planning takes place in the long run. Short run: period of time in which at least one factor of production is fixed. All production takes place in the short run. The length of the short run depends on the time it takes to increase the quantity of the firm"s fixed factors. Fixed factors: normally capital or land, but could also include a type of highly skilled labour. In order to increase output in the short run, more units of the variable factors must be applied to the fixed factors, while the firm plans to change the number of fixed factors. Total product (tp): total output that a firm produces, using its fixed and variable factors in a given period of time. Average product (ap): output that is produced, on average, by each unit of variable factor.