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14 Cards in this Set
- Front
- Back
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Short Run |
A period of time during which at least one factor of production is fixed in supply. |
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Long Run |
A period of time during which all the factors of production are variable in quantity. |
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Fixed Costs |
Costs that don't change as output changes. |
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Variable Costs |
Costs that vary as output changes. |
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What is a company's shut down point in the short run? |
The maxim for all companies in the short run is to cover their variable costs and contribute to the reduction of their fixed costs. |
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Law of Diminishing Marginal Returns |
As more labour is applied to the production process, at some stage the return from each additional worker will begin to decline. |
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Normal Profit |
The return that sufficiently rewards the risk-taking of an entrepreneur and it must be earned to stay in business. |
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Internal Economies of Scale |
Forces within a firm that cause the average cost of that firm to decline as it grows in size. |
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External Economies of Scale |
Forces outside a firm that cause the average cost of that firm to decline as the industry grows in size. |
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Examples of Internal Economies of Scale |
* Increased use of machinery * Specialisation of labour * Constructive savings * Purchasing economies * Economies in distribution * Financial economies * Marketing economies * Management economies * Problem of indivisibility reduced |
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Examples of Economies of Scale |
* Better infrastructure * Specialist firms established * Development of separate research and development units * Subsidiary trades may set up * Availability of training courses * Supports from public bodies |
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Internal Diseconomies of Scale |
Forces within a firm that cause the average cost of that firm to increase as it grows in size. |
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External Diseconomies of Scale |
Forces outside a firm that cause the average cost of that firm to increase as the industry grows in size. |
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Examples of Internal Diseconomies of Scale |
* Poor decision-making |
