Production and its costs

Production and its costs

1. Production : any economic activity that satisfies human want

2. Short run : the period of time over which the input of at least one factor is fixed

3. Long run : the period of time when all factor inputs are variable

4. Total product : the quantitiy of output produced by a given number of inputs over a given period of time.

5. Average product : the quantity of output per unit of input. (TP / QLabour)

6. Marginal product : the addition to output produced by an extra unit of input (MPx = TPx= TPx-1)

7. Total costs : cost of all resources needed to produce a given level of output.

8. Fixed costs : do not alter with output in the short run.

9. Variable costs : vary with output. When output is 0 VC=0

10. Average cost : TC / Q

11. Average fixed costs : FC / Q

12. Average Variable costs : VC / Q

13. Marginal costs : extra cost incurred by production of one extra unit out output (MCx = TCx - TCx-1)

14. Average cost : total cost of producing a Q of goods / by the Q produced.

15. Law of diminishing returns : as more and more of a variable factor is added to a fixed amount of another factor marginal product will at first increase but eventually diminish.

16. Economies of scale : are defined as those advantages of increased size, which lead to falling average costs

17. Minimum efficient scale : the minimum output level where all internal economies have been fully exploited.

18. Barriers to entry : those characteristics of an industry which prevent competitors from entering the industry.

19. Pareto efficiency : it is impossible to make someone better off without making someone else worse off

20. Allocative efficiency : when the cost of producing a good is equal to the value consumers place in the good, which is reflected in the price they are willing to pay for that good. P=MC

21. Productive efficiency : producing good and services with optimal combination of inputs to produce maximum output for minimum cost.