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Short-Run and Long-Run Product and Cost Curves

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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?

They both have to decide how much to produce 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?

Strategic decisions Signup and view all the answers

What is the total product?

The total number of units produced by the firm in a given period Signup and view all the answers

What does the marginal product of labor represent?

The change in total product resulting from a one-unit increase in the quantity of labor Signup and view all the answers

What best describes average product of labor?

Total product divided by the quantity of labor employed Signup and view all the answers

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

It increases initially but eventually decreases Signup and view all the answers

What does the total product curve show?

How total product changes with the quantity of labor employed Signup and view all the answers

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.