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AFC: The abbreviation for average fixed cost, which is fixed cost per unit of output, found by dividing total fixed cost by the quantity of output. Average fixed cost is one of three related cost averages. The other two are average variable cost and avarage total cost. Average fixed cost decreases with larger quantities of output. Because fixed cost is FIXED and does not change with the quantity of output, a given cost is spread more thinly per unit as quantity increases. A thousand dollars of fixed cost averages out to $10 per unit if only 100 units are produced. But if 10,000 units are produced, then the average shrinks to a mere 10 cents per unit.
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Lesson Contents
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Unit 1: Factor Markets |
Unit 2: Derived Demand |
Unit 3: The Curve |
Unit 4: Determinants |
Unit 5: Taking Stock |
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Factor Demand
- The first unit of this lesson, Background, begins this lesson by laying the foundations for the study of factor demand.
- In the second unit, Derived Demand, we see how the demand for a factor of production is based on the demand for the good it produces.
- The third unit, The Curve, then derives the factor demand curve, which is the relation between the price employers are willing to pay and the quantity demanded.
- In the fourth unit, Determinants, we examine the three key determinants that shift the factor demand curve -- product price, factor productivity, and other factor prices.
- The fifth and final unit, Taking Stock, then closes this lesson with a review of factor demand and a preview of factor market analysis in other lessons.
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SUBSTITUTE-IN-CONSUMPTION One of two (or more) goods that provide the same basic satisfaction of a want or need when consumed. A substitute-in-consumption is one of two alternatives falling within the other prices determinant of demand. The other is a complement-in-consumption. An increase in the price of one substitute good causes an increase in demand for the other. A substitute-in-consumption has a positive cross elasticity of demand.
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During the American Revolution, the price of corn rose 10,000 percent, the price of wheat 14,000 percent, the price of flour 15,000 percent, and the price of beef 33,000 percent.
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"Look at the abundance all around you as you go about your daily business. You have as much right to this abundance as any other living creature. It's yours for the asking." -- Earl Nightingale
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