COSTS OF PRODUCTION

Question 1

What is marginal cost and how is it calculated?

Answer 1

Marginal cost measures the increase in total cost that arises from an extra unit of production.

It is calculated by
change in total cost divided by
change in quantity

Question 2

What is marginal product of labour and how is it calculated?

Answer 2

Marginal product of labour is the change in output from increasing the number of workers

change in output divided by
change in labour

Question 3

What is average product of labour and how is it calculated?

Answer 3

Average product of labour measures the output per worker employed

output divided by
labour

Question 4

What is the “law of diminishing returns”?

Answer 4

The law of diminishing returns states that as we add more units of labour to the workplace, the marginal product of labour output will FIRST RISE AND THEN FALL

At the point when MPL (marginal product of labour) begins to fall, production demonstrates diminishing returns

Question 5

What are the reasons for the law of diminishing returns?

Answer 5

• New workers will not have as much capital equipment to work with so it becomes diluted among a larger workforce

Question 6

What’s the problem with marginal product of labour reducing?

Answer 6

When marginal product of labour starts to fall it becomes more expensive to produce an additional unit of output and so marginal cost and average variable cost eventually start to rise

Question 7

What is the “short-run”

Answer 7

The short run is a time period where at least one factor of production is in fixed supply

Question 8

Following the law of diminishing returns, total output will continue to rise as long as…

Answer 8

…marginal product of labour is a positive number