Module 5 Productions and Costs

Question 1

What is a firm?

Answer 1

An organization producing outputs

Question 2

What do private firms aim to maximize?

Answer 2

Profits

Question 3

What are the factors of production?

Answer 3

Capital, Labor, Natural Resources, Materials

Question 4

What does Q(K,L) represent?

Answer 4

Output as function of capital and labour

Question 5

What does APL stand for?

Answer 5

Average Product of Labour

Question 6

What is Increasing Returns To Scale (IRS)?

Answer 6

Output increases more than inputs.

Question 7

What does ATC stand for?

Answer 7

Average Total Cost

Question 8

What is the shape of the Average Total Cost (AC) curve?

Answer 8

Typically U-shaped

Question 9

When are profits positive?

Answer 9

Price > Average cost

Question 10

What are economies of scale?

Answer 10

Cost per unit decreases with output

Question 11

What does the LRAC curve indicate for firms?

Answer 11

Lowest unit costs at R

Question 12

What is the difference between a large and small grocery store?

Answer 12

Variety of products

Question 13

What is production?

Answer 13

Combining inputs to produce outputs

Question 14

What does economic profit include?

Answer 14

Explicit and implicit costs

Question 15

What is the Law of Diminishing Marginal Productivity?

Answer 15

Additional output declines with more labour

Question 16

What is the production function in the long run?

Answer 16

Q = f [L, K]

Question 17

What is Constant Returns To Scale (CRS)?

Answer 17

Output increases exactly as inputs.

Question 18

What is the formula for total cost?

Answer 18

COST = FIXED COSTS + VARIABLE COSTS

Question 19

What does AVC stand for?

Answer 19

Average Variable Cost

Question 20

How is Marginal Cost (MC) generally characterized?

Answer 20

Upward-sloping

Question 21

What is the formula for profit?

Answer 21

Profit = Revenue - Costs

Question 22

How can farm households diversify income?

Answer 22

Off-farm income

Question 23

What is a consequence of farmland consolidation?

Answer 23

Rural depopulation

Question 24

What affects production function?

Answer 24

Capital (K) and Labour (L)

Question 25

How does technology affect the production function?

Answer 25

Raises output for same inputs

Question 26

What does AFC stand for?

Answer 26

Average Fixed Cost

Question 27

What happens when Price equals average cost?

Answer 27

Profits are zero

Question 28

What happens to unit costs as production increases under Diseconomies of Scale?

Answer 28

Unit costs rise

Question 29

Which types of businesses have a lot of size variation?

Answer 29

Grocery stores, retail stores, farms

Question 30

What does MC stand for?

Answer 30

Marginal Cost

Question 31

What does AC equal?

Answer 31

AFC + AVC

Question 32

What is the formula for Total Revenue?

Answer 32

Total Revenue = P q

Question 33

What are fixed inputs?

Answer 33

Inputs not easily changed

Question 34

What is Marginal Product (MP)?

Answer 34

Additional output from one more unit of labour

Question 35

How is APL measured?

Answer 35

Q/L

Question 36

What does it mean if MPL is above APL?

Answer 36

APL rises

Question 37

What happens to APL if MPL is below it?

Answer 37

APL falls

Question 38

What are variable costs?

Answer 38

Costs of variable inputs

Question 39

What do fixed costs comprise?

Answer 39

Costs of fixed inputs

Question 40

Where does the Average Variable Cost (AVC) lie relative to AC?

Answer 40

Below AC curve

Question 41

What is the typical shape of the Average Variable Cost (AVC) curve?

Answer 41

U-shaped or upward-sloping

Question 42

What does the LRAC curve show?

Answer 42

Lowest possible average cost

Question 43

What are the types of firms?

Answer 43

For-profit, not-for-profit, government

Question 44

What are variable inputs?

Answer 44

Inputs easily changed

Question 45

As L rises, what happens to Q and ?Q?

Answer 45

Q rises, ?Q falls

Question 46

What are fixed costs?

Answer 46

Costs that do not vary

Question 47

How is Average Total Cost calculated?

Answer 47

Total cost / quantity

Question 48

What is the effect of doubling all inputs under IRS?

Answer 48

More than double outputs

Question 49

What is Diseconomies of Scale?

Answer 49

Rising costs with increased output

Question 50

What happens when a firm produces at a different quantity from the LRAC curve's minimum?

Answer 50

Higher unit costs

Question 51

Why would market structure change over time?

Answer 51

Changes in technology, crop varieties, transportation infrastructure, etc.

Question 52

Why would firm size change?

Answer 52

Efficient scale changes due to technology and other factors

Question 53

What is 'Social License' in farming?

Answer 53

Perception of family farms

Question 54

How is Average Variable Cost calculated?

Answer 54

Variable cost / quantity

Question 55

What does short-run average cost (SRAC) indicate?

Answer 55

Total of average fixed and variable costs

Question 56

What results from a change in technology?

Answer 56

Change in production function

Question 57

How is Average Fixed Cost calculated?

Answer 57

Fixed cost / quantity