Long Run

Question 1

Time periods in Economy

Answer 1

Short run
Long run

Question 2

Long Run

Answer 2

The period of time during which all factors of production are variable.

Question 3

more information on the long run

Answer 3

basically or essentially, the long run is made up of seevrsal short runs. In the short run, at least one factor of prodction is fixed/cannot be increased while the others are variable and can be increased.

take for exmaple CAPITAL.
in a one year (the short run of a firm) capital as a factor of production is fixed, and therefore cannot be increased. In the second year (the firm’s long run) capital can now be increased and the firm expands.

The short run period of a firm is variable such as its long run period.
A restaurant could’ve taklen 2 yrs to get a new building or piece of equipment and that is it’s short run. Anytime after those two years is it’s long run i.e. no factor of production is fixed.

Question 4

The short run

Answer 4

Each short run period, has the constraint of a fixed factor, while over the long run, that factor becomes variable.

Question 5

Three ways to measure output

Answer 5

Total product
Average product
Marginal product

Question 6

Total product

Answer 6

TP
can be defined as the amount of goods produced (total output) with a given amount of factors of production.

these factors can be variable or fixed.

Question 7

Average product

Answer 7

AP
refers to the amount of output (total product TP) produced per unit of labour (or variable factor used)

TP/units of labour (variable factor)

Question 9

Marginal product

Answer 9

refers to the increase in output as one more unit of a variable factor of production is hired.

MP= change in TP/change in units of ;abour (varibale factor)

Question 10

Law of diminishing returns
short run input/output relationship

Answer 10

The law of diminishing returns says that, if you keep increasing one factor of production of goods (such as labour) while keeping all other factors equal or the same, you’ll reach a point beyond which additional increases will result in a progressive decline in output.

For example, say in the short run, capital is the fixed factor of production, all other factors of production are variable such as labour. By increasing labour, meaning employing more workers, overtime, each worker has less capital to work with, decreasing productivity of each unit of labour, decreasing marginal prouct i.e. diminishing returns.

Question 11

Imporvements in technology to counteract diminishing returns

Answer 11

technological advancements tend to delay the occurrence of diminishing returns, although not entirely. As a variable factor is increased, each unit of the variable factor has less of the fixed factor (the factor that cannot be increased) to work with.

Question 12

factors of production

Answer 12

resources used to produce goods and services

Question 13

Returns to scale

Answer 13

In, the long run all factors of production are variable. When all factors of production are increased, this is known as an increase in the scale of production.

A farmer once had 5 acres and two workers, by increasing his factors of production to 10 acres and 4 workers his scale of production increased.

The effect of an increase in scale of prodcution on output is known as returns to scale

Question 14

Three types of returns to scale

Answer 14

Increasing returns to scale
Decreasing returns to scale
Constant returns to scale

Question 15

Increasing returns to scale

Answer 15

when output increases more than proportionately to increases in input.

E.G. pineapple farmer increased his input by 50% but his output is 80%

Question 16

Decreasing returns to scale

Answer 16

occurs when output increases less than proportionately to increases in input .

e.g. if an electrical plant increases its scale of production (input) by 50% but its output is increased by 20%

Question 17

Constant returns to scale

Answer 17

occurs when output increases proportionately to increases in input.

E.G. a pencil factory’s scale of production increases by 60%, its level of output also increases by 60%