Economics: Production Theory

What is the study of production in economics?

The study of production, or the economic process of converting inputs into outputs

What is the term for the resources used in the production process?

Factors of production

What does the production function show?

The relationship between the quantity of inputs used to make a good and the quantity of output of that good

What is the total product of a variable factor of production?

What outputs are possible using various levels of the variable input Signup and view all the answers

What is diminishing marginal product a property of?

The decline in marginal product as the quantity of an input increases Signup and view all the answers

What is the average product of a variable factor of production?

The total production divided by the number of units of variable input employed Signup and view all the answers

What is the marginal product of an input in the production process?

The increase in output that arises from an additional unit of that input Signup and view all the answers

What happens to the average and marginal product curves initially?

They both rise Signup and view all the answers

When does the marginal product equal the average product?

When the average product is at its maximum Signup and view all the answers

What is the point of intersection of the average and marginal product curves?

The point where the average product is at its maximum Signup and view all the answers

What are the two forces that make market economies work?

Supply and demand Signup and view all the answers

What is the relationship between marginal product and average product when average product is rising?

The marginal product exceeds the average product Signup and view all the answers

How do economists and accountants view a firm differently?

Economists view a firm as a profit-maximizing entity, while accountants view a firm as a cost-minimizing entity. Signup and view all the answers

What is the main difference between fixed costs and variable costs?

Fixed costs are the costs of production that do not vary with the quantity of output produced. Signup and view all the answers

What is the formula to calculate total costs?

TC = TFC + TVC Signup and view all the answers

What do average costs represent?

The total cost of producing one unit of a product. Signup and view all the answers

What is the relationship between total costs and output?

As output increases, total costs increase. Signup and view all the answers

What is the purpose of dividing costs into fixed and variable costs?

To understand how costs change with the quantity of output produced. Signup and view all the answers

What is the term sometimes used to describe the quantity that minimizes average total cost?

Efficient scale Signup and view all the answers

What happens to average total cost when marginal cost is less than it?

It falls Signup and view all the answers

What is the point at which a firm maximizes its profit?

Where MR = MC Signup and view all the answers

What is the shape of the average-total-cost curve?

U-shaped Signup and view all the answers

What is the term for the decrease in average total cost as the quantity of production increases?

Economies of scale Signup and view all the answers

What is the formula for calculating average revenue?

TR/Q Signup and view all the answers

What happens to marginal cost as output increases?

It eventually rises Signup and view all the answers

What is the difference between short-run and long-run cost curves?

Fixed costs are considered in the short run, but become variable in the long run Signup and view all the answers

What is the term for the situation where the average total cost of production increases as the quantity of production increases?

Diseconomies of scale Signup and view all the answers

What is the point at which the marginal-cost curve crosses the average-total-cost curve?

The minimum of average total cost Signup and view all the answers

What is the condition for a firm to continue producing?

MR > MC Signup and view all the answers

What is the term for the situation where the average total cost of production remains constant as the quantity of production increases?

Constant returns to scale Signup and view all the answers