question
What factors fall under capital (K)?
answer
- Long-lived inputs
- Land, buildings (factories, stores), and equipment (machines, trucks)
- Land, buildings (factories, stores), and equipment (machines, trucks)
question
What factors fall under labour (L)?
answer
- Human services
- Managers, skilled workers (architects, economists), and less-skilled workers (construction labourers, custodians)
- Managers, skilled workers (architects, economists), and less-skilled workers (construction labourers, custodians)
question
What kind of relationship does the production function show?
answer
The relationship between the quantities of inputs used and the maximum quantity of output that can be produced, given the current knowledge about technology and organisation
Q = F (l, K)
Q = F (l, K)
question
What does the "Short-run" entail
answer
A period of times so brief that at least one factor of production cannot be varied practically
question
What does the "Long-run" entail
answer
A lengthly enough period of time where all inputs can be altered
question
What is the marginal product of labour?
answer
the change in total output, q, resulting from using a extra unit of labor, L = 1 , holding all other factors constant
question
What is the average product of labour?
answer
The ratio of output q, to the number of workers, L, used to produce that output
question
What is a fixed input?
answer
A factor of production that cannot be varied practically in the short-run
question
What is a variable input?
answer
A factor of production whose quantity can be changed readily by the firm during the relevant time period
question
What does the law of diminishing returns entail?
answer
If a firm keeps increasing an input, holding all other inputs and technology constant, the corresponding increase in the input will become smaller eventually
--> diminish over time
That is if only one input is increased, the MP of input will diminish eventually
--> diminish over time
That is if only one input is increased, the MP of input will diminish eventually
question
What does the curve of an isoquant show?
answer
It shows the different combinations of labour and capital that can produce a level of output
question
What are the properties of an isoquant?
answer
- the father away the curve is to the orgin, the greater level of output
- They do not cross each other
- It is a downward sloping curve
- They do not cross each other
- It is a downward sloping curve
question
Define the term marginal rate of substitution
answer
The willingness to exchange an amount of capital and labour while keeping the output the same
question
What does 'return to scale' mean?
answer
How much does output change if a firm increases all its inputs proportionally
question
Constant returns to scale is a property of production whereby...
answer
all inputs are increased by a certain percentage, and output increases by the same percentage
F(2l, 2k) = 2 * F (k, l)
F(2l, 2k) = 2 * F (k, l)
question
Increasing returns to scale is a property of production whereby...
answer
output increases more than in proportion to an equal increase in all outputs
F(2l, 2k) > 2 * F (k, l)
F(2l, 2k) > 2 * F (k, l)
question
Decreasing returns to scale is a property of production whereby...
answer
output rises less than in proportion to an equal increase in all outputs
F(2l, 2k) < 2 * F (k, l)
F(2l, 2k) < 2 * F (k, l)
question
In short run cost measures, what is a fixed cost (FC)?
answer
A production expense that does not vary, whereby capital costs are a fixed cost
FC = r * k
FC = r * k
question
In short run cost measures, what is a variable cost (VC)?
answer
A production expense that changes with the quantity produced, whereby labor costs are a variable cost
VC = w * l
VC = w * l
question
In short run cost measures, what is a cost (C)?
answer
measured as total cost; C = VC + FC
question
Define a marginal cost
answer
the amount by which a firm's cost changes when it produces one more output
MC = change C/Change q --> MC = change VC/change q
*since only variable changes
MC = change C/Change q --> MC = change VC/change q
*since only variable changes
question
what is the average fixed cost (AFC)
answer
AFC = f/q
question
Average variable cost (AVC)
answer
AVC = VC/q = wL/q = w * 1/APL = w/APL
question
Average Cost (AC) definition
answer
the average cost for one unit of output
AC = c/q = AFC + AVC
AC = c/q = AFC + AVC
question
A frim will make profit if...
answer
AC < p
question
If MC > AC, then...
answer
AC increases as q increases
question
If MC < AC, then...
answer
AC decreases as q increases
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
