Business Objectives

Question 1

What is a firm?

Answer 1

An economic agent/organisation that brings together factors of production in order to produce output

Question 2

What are two of the most important decisions firms make?

Answer 2

• production (how much they will make)
• selling price

Question 3

What is short run

Answer 3

The time period when a firm is free to vary its input of at least one variable factor of production, usually labour, but faces fixed inputs of other factors of production usually capital

Question 4

What is the law of diminishing returns

Answer 4

• if firm increases number of inputs of the variable factor (being labour) while holding constant the input of the other factor (capital)
• it will gradually drive less addition per output per unit of labour for each further increase