Short-Run and Long-Run Product and Cost Curves
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Questions and Answers

In the short run, which of the following is fixed for most firms?

  • Quantity of finished products
  • Quantity of capital (correct)
  • Quantity of labor
  • Quantity of raw materials

What is the main objective for firms when making decisions?

  • Market share maximization
  • Revenue maximization
  • Profit maximization (correct)
  • Cost minimization

Which time frame allows for the quantity of resources used in production to be fixed?

  • Short run (correct)
  • Long run
  • Flexible run
  • Medium run

What is the common characteristic between McDonald’s and Campus Sweaters with respect to decision-making?

<p>They both have to decide how much to produce (A)</p> Signup and view all the answers

Which decision is referred to as critical and irreversible (or very costly to reverse) for a firm's survival?

<p>Strategic decisions (A)</p> Signup and view all the answers

What is the total product?

<p>The total number of units produced by the firm in a given period (D)</p> Signup and view all the answers

What does the marginal product of labor represent?

<p>The change in total product resulting from a one-unit increase in the quantity of labor (D)</p> Signup and view all the answers

What best describes average product of labor?

<p>Total product divided by the quantity of labor employed (A)</p> Signup and view all the answers

What happens to marginal product as the quantity of labor employed increases?

<p>It increases initially but eventually decreases (D)</p> Signup and view all the answers

What does the total product curve show?

<p>How total product changes with the quantity of labor employed (A)</p> Signup and view all the answers

Flashcards

Short-run fixed resource

In the short run, the quantity of capital is typically fixed for most firms.

Firm's goal

Profit maximization is the primary aim for firms in decision-making.

Short run

The time frame where the amount of resources used in production is fixed.

Production Decisions

Both McDonald's and Campus Sweaters need to determine how much to produce.

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Strategic decisions

These are critical, irreversible (or very costly to reverse) decisions for a firm's survival.

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Total Product

The total number of units produced by the firm in a given period.

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Marginal Product of Labor

The change in total product from increasing labor by one unit.

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Average Product of Labor

Total product divided by the quantity of labor employed.

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Marginal Product Trend

Initially, marginal product increases but eventually decreases as labor increases.

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Total Product Curve

Shows how total product changes along with the quantity of labor.

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Study Notes

Short Run and Decision-Making

  • In the short run, the quantity of resources used in production is fixed for most firms.
  • The main objective for firms when making decisions is to maximize profits.

Types of Decisions

  • Critical and irreversible (or very costly to reverse) decisions are crucial for a firm's survival.
  • Routine decisions are not critical and can be easily reversed.

Production and Labor

  • The total product represents the total quantity of goods or services produced by a firm.
  • The marginal product of labor represents the additional output produced by one additional unit of labor.
  • The average product of labor is the total product divided by the quantity of labor employed.
  • As the quantity of labor employed increases, the marginal product of labor eventually decreases.
  • The total product curve shows the relationship between the quantity of labor employed and the total product.

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Description

Learn about distinguishing between short run and long run, understanding and deriving firm's product and cost curves, and analyzing long-run average cost curve. Explore the similarities in decision making between McDonald's and a fictional knitwear producer.

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