Cost revenue and profits

• What is the law of diminishing returns?

  It states that in the short run, when variable factors of production are added to a stock of fixed factors, the marginal product will initially rise and then fall.
• What is meant by the short run in production?

  The short run is defined as a period when there is at least one fixed factor of production.
• What is typically considered a fixed factor of production in the short run?

  Capital, such as office buildings and machinery.
• What is a variable factor of production in the short run?

  Labour, which refers to the workers employed.
• How does total and marginal product change with the addition of variable factors in the short run?

  • Total product initially rises.
  • Marginal product rises and then falls.
  • Eventually, marginal returns become negative and so does total returns
• What leads to lower marginal costs in production?

  Specialization and teamwork increase productivity.
• What happens when capacity is reached in production?

  The gains from adding more labour to fixed factors become exhausted, leading to diminishing marginal returns.
• What is marginal cost (MC)?

  Marginal cost is the cost of producing one additional unit of output.
• What does total product refer to?

  Total product is the quantity of outputs produced by a given number of inputs in a given time period.
• How is average product (AP) calculated?

  Average product is calculated as total product divided by the number of inputs used, or $AP =$$\frac{TP}{O}$.
• If the total product of 1000 workers is 30,000 cars, what is the average product per worker?

  The average product per worker is $AP =$$\frac{30,000 \text{ cars}}{1000 \text{ workers}} =$$30 \text{ cars/worker}$.
• What is marginal product?

  Marginal product is the addition to output produced by an extra unit of input, such as an additional worker.
• If the addition of an extra car washer results in a total output of 30,004 cars, what is the marginal product of that worker?

  The marginal product is 4 cars, as it is the increase from 30,000 to 30,004 cars.
• What does the graph of marginal product typically show?

  The graph shows that marginal product initially rises, reaches a peak, and then falls.
• What happens to marginal returns when they become negative?

  When marginal returns become negative, total returns begins to fall.
• reasons why law of dmr kicks in? - queuing up for machinery and getting in each others way
• Average cost per unit is calculated by dividing the total cost by the number of units produced.
• Total cost = total fixed costs + total variable costs
• Average fixed costs (AFC) are calculated by dividing total fixed costs (TFC) by quantity (Q).
• Average variable costs (AVC) are calculated by dividing TVC by Q.
• Total fixed costs are constant regardless of how many goods or services are produced.
• Fixed costs remain unchanged even if there is no production at all.
• Fixed costs are those which do not vary with changes in production levels (e.g. rent).
• Variable costs change according to the level of production (e.g. raw materials).
• Average total cost (ATC) is calculated by adding AFC and AVC together.