8.3 short run costs

• Labour productivity in the UK stagnated after the 2008-2009 financial crisis for several reasons:

  1. capital investment
  2. labour hoarding
  3. measurement issues
  4. survival of inefficient companies
• Capital Investment (a): UK companies reduced investment in physical capital (machines, technology) after the financial crisis. This lack of investment meant that workers had to continue using older and less efficient machinery, which contributed to low productivity.
• Labour Hoarding (b): Companies retained workers despite a decrease in output. This "labour hoarding" resulted in lower average productivity as fewer goods were produced per worker.
• • Measurement Issues (c): New digital technologies, R&D, and other intangible assets are not always accurately measured, so some gains in productivity may be underreported.
• Survival of Inefficient Companies (d): Cheap funding allowed inefficient firms to survive, pulling down average productivity across the economy.
• The short-run production function illustrates the relationship between inputs (like labour and machinery) and output.
• The key cost types in the short run costs in production:

  • fixed costs : SFC
  • Variable costs : SVC
  • Total costs : STC
• Fixed Costs (SFC): Costs that don’t vary with output (e.g., rent, machinery).
• Variable Costs (SVC): Costs that vary with output (e.g., labour costs).
• Total Costs (STC): The sum of fixed and variable costs.