costs that do vary with output, you pay more the more you produce
what are utility bills
gas,electricity and water bills
marginal cost formula
change in average cost divided by changeinquantity
average cost formula
totalcost divided by quantity
what is the formula for TC
TFC + TVC
long run
period of time when all factors of production are variable can increase any factor of production
returns to scale
what is the change in output when we increase the factor of production what is the change in output when we increase the factor of production
long run increasing returns to scale
when percentage change in output is greater than the percentage change of input
long run decreasing returns to scale
when the percentage change of output is less than the percentage change of input when the percentage change of output is less than the percentage change of input
constant returns to scale
when percentage change of output is equal to percentage change of input
What happens to average cost (AC) when marginal cost (MC) is greater than average cost?
marginal cost average costs and average variable cost graph
AVC is the variable cost per unit of output
causes of shifts in short run costs [1]
changes in costs of production
lower unit costs mean that a business can supply more output at each price, e.g. higher labour productivity lowers the labour cost per unit
higher unit costs cause an inward shift of supply e.g. a rise in wage rates, increase in energy prices/other raw materials
a fall or depreciation in exchange rate causes higher prices of importercomponents and raw materials
advances in production technologies, outward shift in supply
causes of shifts in short run costs
the entry of new producers into the market, causes outward shift in supply
favourable weather conditions for agricultural products , increased supply
taxes,subsidies and government regulation
indirect taxes cause inward shift of supply such as carbon tax
subsidises cause outward shift of supply, e.g. subsidy payed to farmers
regulations increase costs,causinginwardshift e.g. energy efficient regulations
what happens if there is a rise in fixed costs ?
increase causes an upward shift in average total cost
higher fixed costs do NOT cause the marginal cost curve to change
change in fixed costs will only shift ACcurve and not the MC curve, a change in variable costs will shift BOTHAC AND MC
graph showing rise in fixed costs
a change in fixed costs has no effect on marginal costs. marginal costs relate only to variable costs
increase in variable costs graph
rise in variable costs of production leads to an upward shift in both marginal and average total costs
What is the law of diminishing returns?
The law of diminishing returns states that as you add more of a single input to production, while keeping other inputs constant, the marginal output will eventually decrease.
What does the law of diminishing returns focus on?
It focuses on the relationship between inputs and outputs in production.
What happens to marginal output as more of a single input is added?
The marginal output will eventually start to decrease.
What are the key components of the law of diminishing returns?
Principle in economics and production
Relationship between inputs and outputs
Changes in efficiency as one input increases
In a factory producing smartphones, what does the law of diminishing returns predict if more workers are added while keeping other resources constant?
The additional output from each new worker would eventually decrease.
What are inputs in the context of the law of diminishing returns?
Inputs are the resources or factors of production used, such as land, labor, capital, and entrepreneurship.
What are outputs in the context of the law of diminishing returns?
Outputs are the goods or services produced as a result of combining inputs.
What does the law of diminishing returns state about increasing one input while holding others constant?
It states that the additional output (marginal output) will eventually start to decrease.
What are the three stages of returns described by the law of diminishing returns?
Increasing returns: More than proportional increase in output.
Diminishing returns: Less than proportional increase in output.
Negative returns: Decrease in total output.
In a software company, what sequence of events best represents the three stages of returns?
Adding the first few programmers greatly speeds up development. 2. Adding more programmers still increases speed, but not as dramatically. 3. Too many programmers start to slow down the project.
What is a practical example of the law of diminishing returns in agriculture?
A farmer with fixed land adding workers shows increasing returns initially, then diminishing returns, and finally negative returns as too many workers reduce total output.
Why is the optimal production point at five workers in the farmer's example?
It is where total output is highest (400 bushels) before diminishing returns become negative.