Answer to Question #120614 in Economics of Enterprise for Courage Tagoe

Question

an entrepreneur starts a small firm with one machine, and small factory space and employs one person initially. With the aid of appropriate diagram and theory, explain the process of production of proas he increases his output.Indicate clearly what law governs this process

Answer 1

The scale of production, with this type of output has to improve other economic factors with an increase in output.

In the long term process, the system of production obtains a higher scale. In increase in labour, maximum output increases with less rate of defects in the production process. In the event, the production rate increases.

Consequently, total cost is fixed cost(FC) plus variable cost. In the long run, both capital usage and labour usage are variable.

Total cost= (AVC+ AFC)(Quantity of goods).

Marginal cost = change in total costs over change in quantity demanded.

If one additional unit is produced and overall operations with optimised production, the output increases. Following the law of diminishing marginal returns, where optimal level of capacity is reached, an additional factor of production will actually result in increase in output.

Total cost = fixed cost + variable cost.