2281 · 3.6
Firms and production
**Firms and production** (3.6) is core 2281 micro: demand for factors, **labour-intensive** versus **capital-intensive** production, and **productivity**. Practise the cost definitions alongside the diagrams.
Need to know
What you need to know
- Short Run: At least one factor of production is fixed.
- Fixed Costs (FC): Costs that do not vary with output (e.g., rent, insurance).
- Variable Costs (VC): Costs that vary directly with output (e.g., raw materials, wages for production staff).
- Total Cost (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC).
- The Law of Diminishing Marginal Returns explains the shape of short-run cost curves.
Explanation
Firms and production
- Short Run: At least one factor of production is fixed.
- Fixed Costs (FC): Costs that do not vary with output (e.g., rent, insurance).
- Variable Costs (VC): Costs that vary directly with output (e.g., raw materials, wages for production staff).
- Total Cost (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC).