BU111 Lecture Notes - Lecture 1: Average Variable Cost, Average Cost, Product Measure
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Firms raise financial capital by selling equity and debt. Eco(cid:374)o(cid:373)ist use the word capital: for real assets used i(cid:374) productio(cid:374) Firms make thing using a variety of inputs: land and other natural capital, physical capital (tools, machinery, computers, etc, labour. Intermediate inputs (goods. services bought from other firms) Mathematically combine inputs in a production function q=f(k,l) Output produced using capital and labour, f is a function that incorporates, firm technology. Companies decide to produce or not, and how much. Long run- all productive factors can be changed. Holding one factor constant, increasing the amount of the other factor will eventually lead to diminishing returns. Two workers may be more efficient than one. Cost of fixed factors such as capital (buildings, equipment, etc) Does not change with the level of output. For small amounts of the variable factor, may have increasing returns. Short run- some factors are fixed, some costs are sunk. Total cost = total fixed + total variable costs.
