Producer Theory

Question 1

Opportunity cost

Answer 1

The value of the next best alternative

Question 2

Total physical product of labour (TPP (L))

Answer 2

Total output produced by units of labour, for a given capital

Question 3

Average physical product of labour (APP (L))

Answer 3

Average output produced by units of labour, for a given capital

TPP (L) / L

Question 4

Marginal physical product of labour (MPP (L))

Answer 4

The extra output of producing 1 more unit of labour, for a given capi`tal

Change in TPP (L) / Change in L

Question 5

Law of diminishing returns

Answer 5

When some factors are fixed in the SR, employing another unit of a variable factor eventually results in smaller & smaller increases in output