ECON3: Definitions

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  • Created by: TD1173
  • Created on: 21-04-16 10:44
Fixed Costs
Costs that do not vary with output; e.g. cost of a factory
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Variable Costs
Costs that do not vary with output; e.g. electricity, materials
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Total Costs
Fixed + variable costs
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Marginal Cost
This is the cost of producing one extra unit of output.
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ATC, AVC and AFC?
TC/Q, VC/Q and FC/Q
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Total Product
This is the total output produced by all workers
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Marginal Product
This is the output produced by an extra worker
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The Law of Diminishing Returns
This occurs in the short run when one factor is fixed (e.g. Capital). If the variable FoP is increased, there comes a point where the FoP will be less productive.
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Economies of Scale
Occurs when average costs fall with increasing output.
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Specialisation and Division of Labour
In large-scale operations workers can do more specific tasks. With little training they can become very proficient in their task; this enables greater efficiency. E.g. an assembly line with many different jobs.
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Bulk-buying
If you buy a large quantity then the avg costs will be lower
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Technical E.O.S.
When a firm invests in new technology and increases scale of production then benefits from lower AC.
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Financial E.O.S.
A bigger firm can get a better rate of interest.
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Marketing E.O.S
A national TV advertising campaign is more efficient for a large firm.
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Risk Bearing
Bigger firms are able to diversify into different areas. This gives them a greater ability to avoid an economic downturn.
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External E.O.S.
This occurs when firms benefit from the whole industry getting bigger. E.g. if the industry gets bigger all firms will benefit from better infrastructure, access to specialised labour and good supply networks.
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Diseconomies of Scale
This occurs when LRAC start to rise with increased output. Therefore there will be decreasing returns to scale.
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M.E.S.
This is minimum point of output necessary to achieve the lowest AC on the LRAC.
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Other cards in this set

Card 2

Front

Costs that do not vary with output; e.g. electricity, materials

Back

Variable Costs

Card 3

Front

Fixed + variable costs

Back

Preview of the back of card 3

Card 4

Front

This is the cost of producing one extra unit of output.

Back

Preview of the back of card 4

Card 5

Front

TC/Q, VC/Q and FC/Q

Back

Preview of the back of card 5
View more cards

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