production and costs

Question 1

How do firms produce output?

Answer 1

By using inputs / resources / factors of production

Question 2

What is the short run?

Answer 2

A time period during which at least one input is fixed and cannot by changed by the firm

Question 3

What is an example of a firm working in the short run?

Answer 3

If a firm wants to increase output, it can hire more labour and increase materials, tools and equipment, but it cannot quickly change the size of its buildings, factories and heavy machinery

Question 4

What is the long run?

Answer 4

A time period when all inputs can be changed

Question 5

What is an example of a firm working in the long run?

Answer 5

In this time period the firm can build new buildings and factories, and buy more heavy machinery (it can change all of its inputs)

Question 6

What is said about a firm’s inputs in the long run?

Answer 6

They are variable (there are no fixed inputs)

Question 7

How much time does it take a firm to operate in the short and long run?

Answer 7

The short and long run do not correspond to any particular length of time, so some industries may require months to change their fixed inputs while others may require years

Question 8

What is total product (TP)?

Answer 8

The total quantity of output produced by a firm

Question 9

What is marginal product (MP)?

Answer 9

The extra or additional output resulting from one additional unit of the variable input

Question 10

What does the marginal product show?

Answer 10

By how much output increases as labour increases by one worker

Question 11

How is marginal product calculated?

Answer 11

MP = Δ TP / Δ units of labour

Question 12

What is average product (AP)?

Answer 12

The total quantity of output per unit of variable input

Question 13

What does the average product show?

Answer 13

How much output each unit of labour (each worker) produces on average

Question 14

How is average product calculated?

Answer 14

AP = TP / units of labour

Question 15

What is the shape of the total product curve?

Answer 15

S-shaped curve; units of output increase due to increasing marginal product (and then decreasing marginal product), until decreasing as marginal product becomes negative

Question 16

What is the shape of the marginal product curve?

Answer 16

As marginal product increases, so does the slope of the line; therefore when marginal product is decreasing and is negative, the slope of the line goes down

Question 17

What is the shape of the average product curve?

Answer 17

A general upside down U-shape; its gradient initially increases before peaking and then falling (decreasing)

Question 18

Why does marginal product initially increase?

Answer 18

Because the addition to total product made by each unit of labour gets bigger and bigger until the firm reaches its maximum efficiency