# production, costs & revenue

explain the law of dimishing returns
Short term law: a variable FOP is added to a fixed FOP, eventually both the MR and average returns to the variable factor will begin to fall. Aka. law of diminishing marginal productivity
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what is the difference between returns to scale and law of diminishing returns
law of diminishing returns explains the shape of short-term cost curves but returns to scale explains the shape of long-run cost curves & economies and diseconomies of scale
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what are the 3 types of increasing, constant and decreasing returns to scale
increasing: increase in the scale of all FOP causes a more that proportionate increase in output. decrease= opposite. constant= exactly proportionate
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what is the difference between returns to scale and economies of scale
returns to scale= part of long-run production theory, economies of scale= long term cost theory
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what is the shape of the TFC curve & why
horizontal/ remains unchanged when output increases, TFC can be rent for it's buildings
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what is the shape of the AFC curve & why
downwards sloping @ decreasing rate. fixed costs are spread over a large output
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what is the shape of the MC curve & why
marginal productivity theory: as long as marginal productivity of labour is increasing, then assuming all workers are paid the same wage rate, the cost of producing an extra unit falls. MC costs fall at low levels of output. then: law of diminishing
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cont.
returns sets in, an extra worker hired adds less to total output than the previous worker taken on. Total costs of production rise faster than output, leading to a rise in MC
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what is the shape of the ATC curve & why?
adding up TFC & TVC. U shaped: ATC must rise as at high levels of output, any further spending of fixed costs is insufficient to offset the impact of diminishing returns upon variable costs of production. RIsing MC must cut through, pull up ATC curve
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explain the shape of the LRAC curve & why
firm inc the size/scale of all its FOPs, it benefits from inc returns to scale. Falling LR costs result when a firm benefits from EofS. (DisEofS=op). SRATC curves are tangential to LRAC curve. Each SRATC curve represents a particular SR size of firm
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when marginal>the average... / when marginal
1. the average rises, 2. the average falls, 3. the average is constant, neither rising nor falling
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describe the relationship between the MC & AVC curve
after diminishing returns set in, MC curve starts to rise, but the AVC curve continues to fall as long as MC
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when marginal costs fall..... / when marginal costs begin to rise THE INCREASE OF TOTAL COST????
the rate of increase of total cost slows down. when marginal costs begin to rise, the rate of increase of total cost speeds up or accelerates
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what is the relationship between Economies of scale, diseconomies of scale and Long run average cost curves
U shaped: economies and scales are shown by falling LRAC costs, while diseconomies of scale are depicted by rising LRAC curves
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Describe the L-shaped Long run average cost curve
the size of the firm, represented by a SRATC curve, is sited at the point on the LRAC curve beyond which no more economies of scale are possible. But there are no diseconomies of scale, so all sizes beyond this firm are equally productively efficient
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what is a minimum efficient scale of production(MES)
the lowest point on the LRAC curve!!!!! achieved after economies of scale have been benefited to the full.
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what is the difference between invention & innovation
invention is making something entirely new, something that did not exist before at all. innovation involves improving or making a significant contribution to something that has already been invented, turning the results of invention into a product!!!
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what is mechanisation?
process of moving from a labour-intensive to a more capital-intensive method of production, employing more machines and fewer workers.
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what is automation? & the effects of it
automatic control where machines such as robots operate other machines--> increases labour productivity, AC falls so productive efficiency improves
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what are the effects of technological change?????????
changes in production, productivity, efficiency and firm's costs of production. structure of markets. improve economic efficiency- SR & LR cost curves shift downwards, improve social welfare. CREATE DESTRUCTION citizens benefit higher living standard
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## Other cards in this set

### Card 2

#### Front

what is the difference between returns to scale and law of diminishing returns

#### Back

law of diminishing returns explains the shape of short-term cost curves but returns to scale explains the shape of long-run cost curves & economies and diseconomies of scale

### Card 3

#### Front

what are the 3 types of increasing, constant and decreasing returns to scale

### Card 4

#### Front

what is the difference between returns to scale and economies of scale

### Card 5

#### Front

what is the shape of the TFC curve & why