Production and Supply

Question 1

Production Function

Answer 1

tells us the max amount of an output for a given amount of input Q=f(L,K)

Question 2

Constant returns to scale

Answer 2

Doubling of all inputs leads to a doubling of output

Question 3

Average product

Answer 3

Tells us the output per unit of input
APl = Q (total product) /L (labour)
APK = Q/K (capital)

Question 4

Marginal product

Answer 4

Change in output when single input changes (other held constant)

MPl = (initialQ/initialL) (labour)
MPl = (initialQ/initialk) (capital)

Marginal Product = Change in Output/ Change in Input

Question 5

Diminishing Marginal Products

Answer 5

Increase in one input, other inputs held constant, lead to increase in output at a decreasing rate

Question 6

Demand for Labour

Question 7

Value of Marginal Product VMP

Answer 7

price of output x the Marginal product of the input

Question 8

Demand for Capital

Answer 8

The amount the entrepreneurs want to invest

Question 9

Marginal Cost Curve

Answer 9

The marginal cost (MC) curve is defined as the change in total cost divided by the change in energy output.

supply curve of producers

Question 10

Average Cost Curve

Answer 10

The average total cost curve is typically U-shaped. Average variable cost (AVC) is calculated by dividing variable cost by the quantity produced.

Question 11

Competitive Firm (price taker)

Answer 11

Each firm is price taking, ignores its rivals output decisions and doesn’t engage in strategic behaviour

Question 12

Marginal Revenue

Answer 12

the revenue gained by producing one additional unit of a good or service.

Question 13

Average Revenue

Answer 13

the revenue that is earned per unit of output.

Question 14

Profit Maximization Conditions

Answer 14

MR = MC

Question 15

Breakeven Point

Answer 15

The minimum of the AC curve

Question 16

Shutdown Point

Answer 16

The minimum, of the AVC curve

Question 17

Marginal Cost Curve & Supply Curve

Answer 17

Accordingly, the marginal cost curve (MC) is that firm’s supply curve for the output; as price of output rises, the firm is willing to produce and sell a greater quantity. Combining the MC curves for all the firms producing the product is the supply curve for the industry.

Question 18

Shift in Supply & changes in quantity supplied

Answer 18

A change in quantity supplied is a movement along the supply curve in response to a change in price. A change in supply is a shift of the entire supply curve in response to something besides price.

Question 19

Lump sum tax

Answer 19

A tax that is the same amount for everyone

Question 20

Per unit tax

Answer 20

Per unit tax refers to a tax that is applied to each unit of a good or service

Question 21

Economic profit in equilibrium

Answer 21

quantity supplied = quantity demanded

Question 22

Maximum for consumers meant they equated their MV to _______

Answer 22

the price of the good

Question 23

Maximization for firms meant they equated their MC to ________

Answer 23

the price of the good

Question 24

In equilibrium, MV = _______

Answer 24

MC

Question 25

Increases in demand lead to movements along the _____ curve, ________ EQ price, & ________ EQ quantity

Answer 25

supply, increases, increases

Question 26

Increases in supply leads to movements along the ______ curve, _______ Eq quantity & ______ Eq price

Answer 26

demand, decreases, increases