Production

Question 1

define returns to scale

Answer 1

refers to how a firm’s output changes given an increase or decrease in factor inputs in the long run
= used to understand long term production capabilities and productive efficiency of firms

Question 2

define short run

Answer 2

at least one factor of input is fixed

Question 3

define long run

Answer 3

all factors of input are variable= scale and size of production can change to allow EoS

Question 4

define constant returns to scale

Answer 4

Output increases in proportion to input increases. For example, if a factory doubles its inputs (labor, capital, etc.), its output will also double

Question 5

define positive returns to scale

Answer 5

Output increases more than proportionally to input increases. For example, if a factory doubles its inputs, its output may more than double
= leads to internal EoS= falling unit costs= decrease LRAC

Question 6

define negative returns to scale

Answer 6

Output increases less than proportionally to input increases. For example, if a factory doubles its inputs, its output may increase by less than double
= leads to internal DEoS= increase LRAC

Question 7

define the law of diminishing marginal utility

Answer 7

if the consumption of a good increases, the satisfaction derived gradually increases but at a decreasing rate to the point that it reaches 0