Microeconomics Quiz on Production and Cost

Factors of Production

• Primary factors of production include land, labor, capital, and entrepreneurship.
• Labor represents the human effort used in the creation of goods and services.

Man-Made Goods

• Man-made physical goods used to produce other goods and services are referred to as capital.

Average Product (AP)

• The formula for calculating Average Product (AP) is AP = Total Output / Total Inputs.

Changing Agent of Society

• The factor referred to as the changing agent of society is entrepreneurship.

Uncertainty-Bearing and Entrepreneurship

• Economist Joseph Schumpeter posited that uncertainty-bearing is a key role of an entrepreneur.

Production Function

• The functional relationship between inputs and outputs in production is called a production function.

Price and Supply Relationship

• An increase in the price of a commodity typically leads to an increase in the supply of that commodity, following the law of supply.

Average Product and Marginal Product Relationship

• If the average product is decreasing, it implies that the marginal product is also decreasing and may become less than the average.

Measurement of Production Function

• A production function measures the maximum output that can be achieved with a given set of inputs.

Definition by George J. Stigler

• According to George J. Stigler, a production function is defined as a relationship that gives the maximum output obtainable from different combinations of inputs.

Classifying Factors of Production

• Factors of production can be classified as land, labor, capital, and entrepreneurship.

Producer’s Equilibrium Concept

• The main idea behind Producer’s Equilibrium is that a firm aims to maximize its output while minimizing its costs.

Iso-Cost and Iso-Quant Conditions

• In Producer’s Equilibrium, the condition at the point of tangency between the iso-cost line and iso-quant curve is where the marginal rate of technical substitution equals the price ratio of inputs.

Cobb-Douglas Production Function

• The Cobb-Douglas Production Function suggests that factors of production can be substituted for one another to some extent.

Parameter ß in Cobb-Douglas

• The parameter ß in the Cobb-Douglas Production Function represents the output elasticity of a specific input.

Measuring Factor Intensity

• Factor intensity in the Cobb-Douglas Production Function can be measured by the ratio of the marginal products of the inputs employed.

Larger Outlay in Producer's Equilibrium

• A condition reflecting a larger outlay in the context of Producer’s Equilibrium indicates a higher expenditure for maintaining consistent production levels.