Podcast
Questions and Answers
Which factor of production represents all human resources?
Which factor of production represents all human resources?
- Land
- Enterprise
- Labor (correct)
- Capital
Who performs the two-fold function of combining factors of production and coordinating their activities?
Who performs the two-fold function of combining factors of production and coordinating their activities?
- Entrepreneur (correct)
- Land
- Capital
- Labor
Which term is used to refer to all man-made resources in production?
Which term is used to refer to all man-made resources in production?
- Enterprise
- Land
- Capital (correct)
- Labor
What is the term that sometimes separated from labor, land, and capital as a factor of production?
What is the term that sometimes separated from labor, land, and capital as a factor of production?
Which factor involves anticipation of demand and some uncertainty in decision-making?
Which factor involves anticipation of demand and some uncertainty in decision-making?
Which type of costs can be directly traced to a specific activity, product, or process?
Which type of costs can be directly traced to a specific activity, product, or process?
Opportunity costs represent the income from which of the following?
Opportunity costs represent the income from which of the following?
Which type of costs are important because they affect overall profitability despite being untraceable to a specific activity?
Which type of costs are important because they affect overall profitability despite being untraceable to a specific activity?
Incremental costs are incurred when a business makes which of the following decisions?
Incremental costs are incurred when a business makes which of the following decisions?
Which type of costs vary with changes in the activity or product?
Which type of costs vary with changes in the activity or product?
What do opportunity costs calculate in terms of missed opportunities?
What do opportunity costs calculate in terms of missed opportunities?
Which type of costs include manufacturing costs relating to production?
Which type of costs include manufacturing costs relating to production?
If an entrepreneur decides to work for others instead of starting their own business, what type of cost is represented by the foregone salary?
If an entrepreneur decides to work for others instead of starting their own business, what type of cost is represented by the foregone salary?
What type of cost cannot be directly traced to a specific activity or component of the business?
What type of cost cannot be directly traced to a specific activity or component of the business?
Which type of cost is incurred when upgrading machinery to increase output?
Which type of cost is incurred when upgrading machinery to increase output?
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Study Notes
Capital
- Capital is wealth used for production rather than consumption.
- Examples include tools, machinery, livestock, seeds, and fertilizers.
- Recognized as a factor of production alongside land, labor, and enterprise.
Enterprise (Organization)
- Organization coordinates land, labor, and capital for production.
- The person managing this organization is called an entrepreneur.
- Entrepreneurs supervise production processes and develop business policies.
Functions of the Entrepreneur
- Decision-Making: Entrepreneurs determine production policies, including what, how, where, and how much to produce, as well as marketing strategies.
- Management Control: Coordination of the factors of production (land, labor, capital) is a key role of the entrepreneur.
- Risk Taking: Entrepreneurs assume risks related to production, anticipating market demands and uncertainties.
Factors of Production
- Commonly classified into four groups: land, labor, capital, and enterprise.
- Each factor receives rewards correlated with its contribution to production.
Costs in Production
-
Short Run: Defined as a period where at least one input is fixed (e.g., machinery and buildings).
- Fixed Costs: Do not change with production levels (e.g., rent, salaries).
- Variable Costs: Fluctuate with output levels (e.g., raw materials, hourly wages).
-
Long Run: All inputs can be varied, eliminating fixed costs; all costs are variable.
Average Cost
- Average cost (AC) is calculated as total cost (TC) divided by the number of units produced.
- Three types of average costs:
- Average Variable Cost (AVC): Per unit cost of variable inputs.
- Average Fixed Cost (AFC): Per unit cost of fixed inputs.
- Average Total Cost (ATC): Overall cost per unit combining both fixed and variable costs.
Sunk Costs
- Sunk costs are irreversible expenses already incurred (e.g., advertising, research, equipment purchase).
Costs Classification
- Private Costs: Incurred by businesses for their operational goals (e.g., production costs, advertising).
- Social Costs: Costs borne by society due to the business's activities (e.g., environmental pollution, depletion of natural resources).
Variability of Costs
- Fixed Costs: Stable regardless of production volume; examples include rent and loan interest.
- Variable Costs: Change with production levels; examples include raw materials and labor.
- Marginal Cost: Extra cost incurred when producing one additional unit of output.
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