B2.01.03: Production

Question 1

Define profit.

Answer 1

Profit is Total Revenue (TR) minus Total Costs (TC) (P = TR - TC).

Question 2

What’s the law of diminishing marginal returns.

Answer 2

Adding more of a production factor results in progressively smaller output increases.

Question 3

Define costs and its types.

Answer 3

Costs are payments made by a firm for operations.

Types: Fixed Costs (do not vary with output), Variable Costs (vary with output), Implicit Costs (opportunity costs).

Question 4

Define total product.

Answer 4

Total quantity of goods/services produced in a specific time with a given input quantity.

Question 5

Define short run and long run in production.

Answer 5

Short run has at least one fixed factor of production(very good)

Long run has all factors variable.

Question 6

Explain the Law of Diminishing Marginal Returns.

Answer 6

In the short run, as variable resources are added, additional output eventually decreases.

Question 7

How does marginal profit change and why?

Answer 7

Marginal profit rises due to specialization and underutilization of fixed factors.

Marginal profit falls due to fixed factors constraining production.

Question 8

Describe the Law of Total Product.

Answer 8

Total product is maximized when marginal product is zero.