Short and long term production :
- The two term can vary from a company to another
- The short term is the period during which at least one factor of production is fixed
- The long term is the time horizon that allow all factors of production to vary
- Fixed productions factors cannot be changed in the short term
- Variable production factors can be changed in the short term
Production factors :
- Explicit costs = the one not owned by the company, the opportunity cost of a production factor that the company does not own so it must acquire
Explicit cost = acquisition cost
- Implicit costs = owned but the company, what could the company could have earned by using the production factor in an alternative way ( opportunity cost )
Production scale :
- Constant returns to scale : when an increase in all production factors by a certain percentage leads to an increase in production by the same percentage
- Increasing returns to scale : when an increase in all production factors by a certain percentage leads to an increase in production by a higher percentage
- Decreasing returns to scale : when an increase in all production factors by a certain percentage leads to an increase in production in a smaller percentage
Définition
Deceasing returns to scale
All factors increase by the same percentage ( long term )
Diminishing marginal returns
Only one production factor varies ( short term)
PMB ( private marginal benefit )
The profit derived from producing or consuming an additional unit of a good for the individuals who decides to produce or consume it without considering the potential benefits for the other
SMB ( social marginal benefit )
The benefit of producing or consuming an additional unit of a good taking into account both the benefit to the individual who decides to produce or consume it and the benefit to all other persons affected by the decision
EMC ( external marginal cost )
The cost of producing an additional unit of a good that is borne by everyone other than the producer
PMC ( private marginal cost )
The cost to the producer of producing an additional unit of a good without taking into account the costs that its production imposes on other
SMC ( social marginal cost )
The cost of producing an additional unit of a good taking into account both the cost to the producer and the cost borne by others affected by the production of the good. The social marginal cost is the sum of the private and external marginal cost
