Production Theory

Question 1

What is the short run?

Answer 1

time period where at least one of the factors of production is fixed and cannot be varied

Question 2

What is total product?

Answer 2

total output produced by all the workers in a firm

Question 3

What is average product

Answer 3

total output divided by total number of workers employed

Question 4

What is marginal products?

Answer 4

change in quantitiy of total output resulting from one extra worker

Question 5

What is the law of diminishing returns?

Answer 5

short run law stating as a fixed factor is added to factor of production, eventually and inevitably both the marginal and average returns to the variable factor will begin to fall

Question 6

What is the long run?

Answer 6

all factors of production are variable

Question 7

WHat are the three possibilities regarding returns to scale?

Answer 7

• increasing returns to scale
• constant returns to scale
• decreasing returns to scale

Question 8

What is increasing returns to scale?

Answer 8

increase in the scale of all FoP cause a more then proportionate increase in output

Question 9

constant returns to scale?

Answer 9

increase in scale of all FoP cause the same proportionate increase in output

Question 10

Decreasing returns to scale?

Answer 10

increase in scale of all FOP cause less than proportionate increase in output