Topic 7: Producer Choice

Question 1

production possibility function

Answer 1

the most output the firm can get from a given combination of inputs

Question 2

production possibility set

Answer 2

captures the idea that the firm can in theory produce less than the maximum for a given set of inputs

Question 3

diminishing marginal product

Answer 3

each extra unit of input brings less and less output

Question 4

long run

Answer 4

time when all factors of production can be varied

Question 5

short run

Answer 5

when at least one factor of production must be used in a fixed amount

Question 6

assumption of firm operating in competitive markets

Answer 6

firm takes prices of all inputs and outputs as given

Question 7

cost minimisation

Answer 7

involves choosing input combinations where prices are given by the market
- issue when we think about labour

does the firm have an obligation to employ a certain number of individuals?

also non-competitive markets where the firm sets prices
- reflect on squeezing wages and supply prices