Theory of production

Question 1

short run d

Answer 1

period during which fixed costs and the scale of production stay fixed

Question 2

short run other d

Answer 2

where at least one factor of production remains fixed

Question 3

increasing marginal returns d

Answer 3

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

Question 4

average product d

Answer 4

total product divided by the number of workers

Question 5

law of diminishing returns d

Answer 5

increasing amounts of a variable factor added to a fixed factor and the amount added to the total product by each additional unit of the variable factor eventually decreases

Question 6

why does law of diminishing returns happen

Answer 6

because one factor of production is fixed so eventually becomes overloaded

Question 7

optimal output d

Answer 7

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

Question 8

productive efficiency d

Answer 8

minimum ATC, producing the max possible output from inputs into the production process

Question 9

fixed costs d

Answer 9

costs that do not vary with output

Question 10

marginal product d

Answer 10

output added by the extra worker or unit of a factor

Question 11

variable costs d

Answer 11

costs of production that vary with output

Question 12

semi-variable costs d

Answer 12

costs which have both a fixed and variable cost element

Question 13

average total cost

Answer 13

total cost divided by the number produced

Question 14

marginal cost d

Answer 14

cost of the extra unit of output

Question 15

why does the MC cut ATC at lowest point

Answer 15

because if the MC is above the average then it will pull the average up

Question 16

why is there less diminishing returns in the long run

Answer 16

because there are no fixed factors of production

Question 17

increasing returns to scale d

Answer 17

where an increase in factor inputs leads to a more than proportionate increase in outputs

Question 18

what does the flat part on LRATC mean

Answer 18

constant returns to scale

Question 19

decreasing returns to scale d

Answer 19

where an increase in factor inputs leads to a less than proportionate increase in factor outputs

Question 20

constant returns to scale d

Answer 20

increase in factor inputs leads to a proportionate increase in factor output

Question 21

minimum efficient scale

Answer 21

the lowest point on the long-run average total cost curve and is also known as the output of long-run productive efficiency

Question 22

is the MES a single value

Answer 22

no it will most likely be a range of outputs

Question 23

what does it mean for firms that can’t reach the MES

Answer 23

they are unlikely to be competitive with other firms

Question 24

what does the MES depend on

Answer 24

nature of the industry and its costs structure (fixed and variable)

Question 25

what can the MES mean for the size of the market

Answer 25

a large MES could mean there is only a few firms in the industry

Question 26

what do many SRATCs make up

Answer 26

LRATC

Question 27

what can a firm do when its at the lowest point on its SRATC

Answer 27

increase the scale of production

Question 28

why may some firms not expand

Answer 28

lack of available finance, little likelihood of planning application granted, fears market growth temporary

Question 29

what happens if a firm doesn’t expand

Answer 29

not reducing costs to the lowest level

Question 30

why may it not matter if not at lowest point on ATC

Answer 30

if profits are adequate