Theme 3 - Chapter 43 Key terms

Question 1

Average product

Answer 1

The quantity of output per unit of factor input. It’s the total product divided by the level of output.

Question 2

Law of diminishing returns

Answer 2

If increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and then the average product of that variable input will decline. Diminishing returns are said to exist when this decline occurs.

Question 3

Long run

Answer 3

All factor inputs are variable

Question 4

Short run

Answer 4

At least one factor input, normally Capital, is fixed.

Question 5

Marginal Product

Answer 5

The addition to output produced by an extra unit of input. It is the change in total output divided by the change in the level of inputs.

Question 6

Returns to scale

Answer 6

The change in percentage output resulting from a percentage change in all the factors of production. There are increasing returns to scale if the percentage increase in output is greater than the percentage increase in factors employed, constant returns to scale if it’s the same and decreasing returns to scale if it’s less.

Question 7

Total product

Answer 7

The quantity of output measured in physical units produced by a given number of inputs over a period of time.

Question 8

Very long run

Answer 8

The period of time when the state of technology may change.