The theory of production

Question 1

What are total costs?

Answer 1

Fixed costs + variable costs

Question 2

What are fixed costs?

Answer 2

Costs of production that do not vary as output changes

Question 3

What are variable costs?

Answer 3

Costs of production that vary with output

Question 4

What is short run?

Answer 4

A period during of time during fixed costs and the scale of production remain fixed

Question 5

What is long run?

Answer 5

A period of time during which all factors become variable and the scale of output can change

Question 6

What is marginal product?

Answer 6

The output added by the extra worker or unit of a factor

Question 7

What production theory is associated with the short run?

Answer 7

Law of diminishing marginal returns

Question 8

What is increasing marginal returns?

Answer 8

Where the addition of an extra variable factor adds more output than the previous factor

Question 9

What is diminishing marginal returns?

Answer 9

Where the addition of an extra variable factor adds less output than the previous factor

Question 10

What is average product?

Answer 10

The total product divided by the number of workers

Question 11

What is productive efficiency?

Answer 11

When a firm operates at minimum average total cost

Question 12

What does variable cost vary directly with?

Answer 12

Output

Question 13

If output rises, what happens to variable costs?

Answer 13

Rise

Question 14

What is average fixed cost?

Answer 14

Total fixed costs/ Quantity

Question 15

What is average variable cost?

Answer 15

Total variable costs/ Quantity

Question 16

What is average total cost?

Answer 16

Total costs/ Quantity

Question 17

What is marginal cost?

Answer 17

The cost of one extra unit of output

Question 18

When output increases, what happens to average variable costs?

Answer 18

Increase

Question 19

When output increases what happens to average fixed costs?

Answer 19

Decreases

Question 20

What is the relationship between average and marginal costs?

Answer 20

The marginal cost will cut the average cost at its lowest point

Question 21

What production theory is associated with long run?

Answer 21

Returns to scale

Question 22

What is increasing returns to scale?

Answer 22

Where an increase in factor inputs leads to a more than proportionate increase in output

Question 23

What is decreasing returns to scale?

Answer 23

Where an increase in factor inputs leads to a less than proportionate increase in output

Question 24

What is constant return to scale?

Answer 24

Where an increase in factor inputs leads to a proportional increase in factor outputs

Question 25

What is minimum efficient scale?

Answer 25

Corresponds to the lowest point on the LRATC curve

Question 26

If a firm cannot reach the MES, how will this effect their competitiveness?

Answer 26

The are unlikely to be competetive with other firms

Question 27

If the MES is low, is there a small or large number of firms in that industry?

Answer 27

Large

Question 28

What is optimal output?

Answer 28

The ideal combination of fixed and variable factors to produce at the lowest average cost