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Productivity
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measures output per unit of input(s)
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For firms and industries, productivity growth leads to...
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lower unit costs, higher market shares, higher profits
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For nations, productivity growth leads to....
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higher GDP/capita, higher wages, higher standard of living
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Production Function
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indicates the maximum output (Q) that can be produced for every specified combinations
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Long-Run Production Function
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Q = f (K, L ; t) - all inputs are variable
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Short-Run Production Function
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Q = f (K, L ; t) - K & t are fixed
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Production function may be applied to most firms and countries so long as...
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inputs and outputs are clearly defined
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Average Product of Labour (APl)
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Q / L
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Marginal Product of Labour (MPl)
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change in Q / change in L
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APl is the most common measure of productivity for firms because...
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easy measurement, and can be used across all industries
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Law of Diminishing Returns
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as units of one product are added, resulting additions to output will eventually begin to decrease
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Average Product of Labour (Graph)
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slope of a line from the origin to any intersection on the production curve
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Marginal Product of Labour (Graph)
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slope of the tangent of the production curve
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Labour Productivity
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output per unit of labour
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In short-run productivity measures, you should always use a benchmark like...
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similar organizations, average competitor
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Another equation for MC = ML
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P*MPl = w
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Long-run productivity growth depends on....
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technological change, capital investments, human capital, returns to scale
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Labour productivity in the long-run can be increased/shifted by....
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more and better capital, technological change, and higher quality workers
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Returns to Scale
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the effect on Q of increasing all inputs by the same amount
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Constant Returns to Scale
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Q increases by S
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Increasing Returns to Scale
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Q increases by more than S
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Decreasing Returns to Scale
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Q increases by less than S
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Cobb-Douglas Production Function
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q = 𝒂LᶜKᵈ
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Production Analysis
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the relationship between physical outputs and physical inputs
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Cost Analysis
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examine the way in which dollar costs are affected by output choices and input prices
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Opportunity Costs
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foregone benefits associated with using resources in their best alternative use
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Economic Profits
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difference between what is being earned and what could be earned in the next best alternative
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Fixed Costs
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do not vary with ouput
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Variable costs
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do vary with output
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In the long run...
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fixed costs are avoidable, variable costs are unavoidable
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In the short run,
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some costs are fixed and some are variable
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Sunk Costs
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expenditures that have already been incurred and cannot be recovered (entry barriers)
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Sunk costs are irrelevant to....
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operating decisions and forward looking decisions
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Some exit costs act as sunk costs that result in...
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exit barriers
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Sunk Cost Effect
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results in an incumbent firm that slow to adopt in a new technology
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Real economies of scale arise from...
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more efficient use of real resources
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Precuniary economies of scale arise from...
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reduced input prices
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Minimum Efficient Scale (MES)
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the minimum plant or firm size at which economies of scale are exhausted
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Minimum efficient scale is an important determinant of...
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market structure (# of firms in an industry)
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Learning/Experience Curve
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charts with cost reductions associated with higher cumulative output
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Total costs are affected not just by scale of operations but also by the....
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composition of outputs
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Economies of Scope
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present when the joint output of a single firm costs less than the sum of costs
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Economies of scope arise because of...
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shared inputs, and costs complementaries
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Shared Inputs
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occur at the level of production unit or multi-plant level
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Cost Complements
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occur when producing more of one good reduces the cost of another good
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Cost complements are occurring because of
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knowledge spillovers
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