Production in the Short Run

Question 1

What is the short run period?

Answer 1

• The short run period of time is when at least one factor of production is fixed.
• It is the period of time in which firms can only vary the amount of labor and the raw materials it uses in its production.
• Capital and land resources are fixed.

Question 2

What is the long run period?

Answer 2

• The long run period is the time when all factors of production become variables
• The quantities of labor, capital and land resources can all be varied in the long run

Question 3

What is total product?

Answer 3

Total quantity of output produced by a firm

Question 4

What is marginal product?

Answer 4

• Additional output that each additional unit of variable input (usually labor) can produce
• It tells us by how much output increases as labor increases by one worker
• MP = difference in total product / difference in units of
  variable input

Question 5

What is average product?

Answer 5

• Total quantity of output per unit of variable input
• Tells us how much each unit of labor produces on
  average

Question 6

What is the relationship between the marginal and average product curves?

Answer 6

• Marginal product curve always intersects the average product curve when it is at its maximum
• When MP > AP, AP is increasing
• When MP < AP, AP is decreasing

Question 7

What are fixed factors of production?

Answer 7

Fixed factors of production are those that are not easily changed in quantity over short periods of time, such as capital or land

Question 8

What are variable factors of production?

Answer 8

Variable factors of production are those that are changed in quantity easily over time, such as labor and raw materials used

Question 9

What is the law of diminishing marginal returns?

Answer 9

The law of diminishing marginal returns explains that increased variable factors of production added to the production process, when at least one factor of production is fixed (such as land), will result in falling marginal product after an initial increase.

The main cause for diminishing returns is overcrowding.

Question 10

What is an assumption of the law of diminishing marginal returns?

Answer 10

The law of diminishing marginal returns presupposes that the fixed inputs remained fixed, and the technology of production is also fixed