Business economics and the distribution of income

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Total Costs
Variable costs + fixed costs
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Fixed costs
Costs of production that do not vary with output e.g. rent
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Variable costs
Costs of production that vary with output e.g. cost of raw materials
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Short run
A period during which fixed costs and scale of production remains fixed
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long run
period during which all factors are variable and the scale of output can change
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Marginal product
the output added by the extra worker or unit of a factor
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Increasing marginal returns
where the addition of an extra variable factor adds more output than previous variable factor.
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Average product
the total product divided by the number of workers
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law of diminishing marginal returns
where increasing amounts of a variable factor are added to a fixed factor and the amount added to total product by each additional unit of the variable factor eventually decreases.
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Optimal output
the ideal combination of fixed and variable factors to produce the lowest average cost
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productive efficiency
when a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process
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depreciation
in relation to fixed assets, a fall in the value of an asset during its working life.
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Semi-variable costs
costs which have both a fixed and variable element, e.g. landline telephone usage
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Average fixed costs
total fixed costs divided by the number produced
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Average variable costs
total variable costs divided by the number produced
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average total cost
total cost divided by the number produced
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marginal cost
the cost of the extra unit of output
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increasing returns to scale
where an increase in factor inputs leads to a more than proportionate increase in outputs
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decreasing returns to scale
where an increase in factor inputs leads to a less than proportionate increase in factor outputs
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constant returns to scale
where an increase in factor inputs leads to a proportional increase in factor outputs
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minimum efficient scale
this corresponds to the lowest point on the long-run ATC curve, aka the output of the long-run productive efficiency
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Other cards in this set

Card 2

Front

Costs of production that do not vary with output e.g. rent

Back

Fixed costs

Card 3

Front

Costs of production that vary with output e.g. cost of raw materials

Back

Preview of the back of card 3

Card 4

Front

A period during which fixed costs and scale of production remains fixed

Back

Preview of the back of card 4

Card 5

Front

period during which all factors are variable and the scale of output can change

Back

Preview of the back of card 5
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