Microeco 2.2

Question 1

Factors of production in the short run

Answer 1

Short run - At least one factor of production is fixed

Question 2

Factors of production in the long run

Answer 2

Long run - All costs are variable

Question 3

In the _______ run, there are both fixed costs and variable costs

Answer 3

Short run

Question 4

What are variable costs

Answer 4

Costs that vary with output (E.g. Wages)

Question 5

What are fixed costs

Answer 5

Costs that don’t vary with output (E.g. Land)

Question 6

What are salaries

Answer 6

Yearly, fixed costs

Question 7

What are wages

Answer 7

Hourly, variable costs

Question 8

Total fixed costs on a diagram

Answer 8

Horizontal line

Question 9

Average fixed costs on a diagram

Answer 9

Downward curve (Always falling curve)

Question 10

Average fixed cots formula

Answer 10

Total fixed costs / quantity

Question 11

Fixed costs are only relevant in the _______ run. Because…

Answer 11

Short run - Factors are only fixed in the short run

Question 12

Define: Marginal cost

Answer 12

Additional cost of selling one extra unit (due to variable costs)

Question 13

Marginal cost formula

Answer 13

Change in total cost / Change in quantity

Question 14

If productivity increases, marginal cost will __________

Answer 14

Decrease

Question 15

By hiring more workers, productivity increases because workers will be able to ___________ using division of labour

Answer 15

Specialise

Question 16

Law of diminishing marginal returns

Answer 16

In the short run, as more factors are employed, the marginal returns from these factors will eventually decrease

Question 17

Why don’t firms don’t experience law of diminishing marginal returns in the long run

Answer 17

Because all firms are available

Question 18

What is marginal cost curve is the shape of

Answer 18

A Nike tick

Question 19

Why does MC initially decrease

Answer 19

Because as output increases and more workers are hired, they can specialise, increasing productivity and decreasing marginal cost

Question 20

Average variable costs formula

Answer 20

Total variable cost / quantity

Question 21

Average variable cost is a ___ shape

Answer 21

U shape

Question 22

Marginal cost curve drags down average cost curve and after Q1…

Answer 22

Drags it back up

Question 23

Average total cost formula

Answer 23

Average variable cost + Average fixed cost

Question 24

Average total cost is the same as average variable cost but ________

Answer 24

Higher

Question 25

Long run average cost curve is the ______ as short run average cost curve

Answer 25

Same