Economics: Production Functions and Costs

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Questions and Answers

The Law of Diminishing Marginal Returns states that as more units of one factor of production are added, there is a smaller increase in output if all other factors remain constant.

True (A)

What is the primary difference between a Perfectly Competitive Market and a Monopoly?

A Perfectly Competitive Market has many sellers offering identical products, giving buyers numerous choices and limiting each seller's ability to influence the market price. A Monopoly, on the other hand, has only one seller who controls the entire market, allowing them to dictate the price of the product.

Which of the following is NOT considered a characteristic of a Perfectly Competitive Market?

Homogeneous Products
High Barriers to Entry (correct)
Large Number of Buyers and Sellers
Perfect Information

What does 'Oligopoly" mean in the context of market structures?

Oligopoly refers to a market structure where a select few firms dominate the industry, creating a limited competitive landscape. It's typically characterized by high barriers to entry, limited product differentiation, and the possibility of price fixing by the dominating firms. Signup and view all the answers

Which of these is NOT a type of Monopoly?

Price Fixing Monopoly (D) Signup and view all the answers

A Monopsony is a market structure where there is only one buyer for a particular product.

True (A) Signup and view all the answers

What is the primary difference between a Perfectly Competitive Market and an Imperfect Market?

A Perfectly Competitive Market meets the criteria typically considered ideal for a highly competitive market, such as having numerous buyers and sellers, offering identical products with no barriers to entry, and perfect information. In contrast, Imperfect Markets lack these qualities, exhibiting features like limited competition, differentiated products, and barriers to entry, which can impact pricing and market dynamics. Signup and view all the answers

How does the concept of 'Explicit Costs' differ from 'Implicit Costs' within the realm of business accounting?

Explicit Costs are straightforward, out-of-pocket expenses a business incurs, like wages, rent, and material purchases. These costs are readily identifiable and quantified. Implicit Costs, on the other hand, represent the opportunity cost associated with using resources already owned by the business, such as the value of a business owner's time or the potential return on investments if they were allocated differently. These costs are more abstract and often estimated subjectively. Signup and view all the answers

What does 'Economic Profit' represent in the context of business operations?

Economic Profit is a more comprehensive measure of profitability compared to Accounting Profit. It takes into account both Explicit Costs (out-of-pocket expenses) and Implicit Costs (opportunity costs) associated with a business's operations. Therefore, Economic Profit reflects not only the accounting profit but also the forgone potential earnings that might have been realized from alternative uses of resources. Signup and view all the answers

Flashcards

Production Function

The economic process of transforming inputs into outputs.

Variable Inputs

Variable inputs can be easily adjusted by firms based on their needs, such as raw materials, labor, and capital.

Fixed Inputs

Fixed inputs are resources that cannot be easily changed in the short run, such as machinery or land.

Short-Run Cost Minimization

The goal in the short run is to produce a given quantity of output with the least possible cost by adjusting variable inputs while keeping fixed inputs constant.