3.3.2 Costs

Question 1

What is meant by the short run in economics ?

Answer 1

• Where one FOP is fixed

Question 2

What is meant by the long run in economics ?

Answer 2

• Where all factors of production can be varied

Question 3

What is meant by marginal

Answer 3

The increase or decrease from the addition of one unit .

Question 4

What is the law of diminishing marginal productivity ?

Answer 4

As variable factors are added to a fixed factor, Marginal product will initially rise and then fall.

Question 5

What is the marginal cost

Answer 5

• The addition to total costs by the production of one more additional unit of output

Question 6

What is the formula for Marginal output

Answer 6

Change in TP / Change in Labour

Question 7

What is the formula for average product

Answer 7

TP / Quantity Of Labour

Question 8

What are the two reasons why marginal product rises when labour increases?

Answer 8

1 - Specialisation and division of labour, employees are becoming more skilled and they are dividing tasks.
2 - Under utilisation of fixed FOPs, e.g unused ovens

Question 9

Why does marginal product start to fall?

Answer 9

1 - Fixed FOPs constrain production. E.g a farm only having one field or a pizza shop having three ovens

Question 10

Explain the marginal costs curve in two parts

Answer 10

1 - As labour productivity increases, MC decreases as marginal product increases
2 - LDMR kicks in as there is a constraint on the FOPs, meaning that MC increases

Question 11

What is the formula for