Foundations of Economic Analysis: Supply

Question 1

What is the diminishing marginal product?

Answer 1

If increasing quantities of labour are applied ceteris paribus to producing a good then the additional amount produced by each additional labourer (called the marginal product) will eventually decrease.

Question 2

What is supply related to?

Answer 2

The current price of the product
The prices and quantities of factors of production
The current state of technology.

Question 3

Using a ceteris paribus assumption what is the formula that we use to concentrate on current price?

Answer 3

Qs = g (P)

Question 4

If output increases, what should we therefore expect?

Answer 4

As output increases, with given technology and prices of inputs, then we can expect costs to rise for each additional unit of output.

Question 5

If costs rise, what should we therefore expect?

Answer 5

As costs rise then a firm will need higher prices to make a profit on each additional unit of output.