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What Is the difference between the short run and long run.

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The short run

is defined as a period in time when at least one factor of production is fixed in supply. (usually capital)

The long run

is the period of time when it is possible to alter all factors of production

Fixed cost/overhead/indirect costs

These are costs which do not change with output in the short run (e.g. insurance, pensions paid to former employees)

Variable costs

Variable costs

Total cost

FC+VC

Average cost ( or unit cost)

= TC/Q

Marginal cost

the change in total cost arising form changing output by one unit.

Average product

the amount that is produced, on average by each unit of4 the variable factor

Average product equation

P/V

Marginal product:

the extra output that is produced by using an extra unit of the variable factor.

law of diminishing marginal returns

As extra factors of a variable unit are added to a fixed factor, the output from each additional unit of the variable factor will eventually diminish.

The law of diminishing average returns

As extra units of a variable factor are added to a given quantity of a fixed factor will eventually diminish.

Economic cost equation

= explicit costs+ implicit costs

Explicit cost

Factors that are purchased from others and not already owned by the firm Explicit costs involve the direct payment of money.

Implicit costs.

Factors that are already owned the firm. It will not have to pay out money to use them. However, there is still an opportunity cost in their use which needs to be accounted for.

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