COMM 171 - Lecture 5 Production

Question 1

what is production, production function, fixed input and variable input

Answer 1

Production is the process of turning inputs into outputs.
* The cost structure of a firm depends on the nature of the

production process.
* A production function is the relationship between the
quantity of inputs a firm uses and the quantity of output it
produces.
– A fixed input is an input whose quantity is fixed for a
period of time and cannot be varied
– A variable input is an input whose quantity the firm can
vary at any time

Question 2

Long run, short run, and total product curve and what is the x and y axis of the total product curve

Answer 2

The long run is the period in which all inputs can be
varied.

• The short run is the period in which at least one input is
  fixed.
• The total product curve shows how the quantity of
  output depends on the quantity of the variable input for a given quantity of the fixed input.

X axis is the quantity of labor
Y axis is th Q producded

Question 3

What is marginal product and what is MPL and its formula

Answer 3

Marginal product is the change in output resulting from a one-unit increase in
the amount of one input

MPL = MPL is the change in output that results from employing an added unit of labor.

MPL = Change in quantity / Change in Labor

Question 4

Why is marginal product of labor goes down as more quantity of labors

Answer 4

Because there are diminshing returns to an input.

MPL) is the change in output that results from employing an added unit of labor.

Question 5

What happens to total product and amrginal product when fixed input goes up

Answer 5

With more land (fixed input) each worker can produce more. This shifts the total product curve up.

• So the MPL of each worker is higher when the farm is larger; the MPL curve shifts up, too.

Question 6

What is a fixed and variable cost

Answer 6

A fixed cost is a cost that does not depend on the quantity
of output produced. It is the cost of the fixed input.
– E.g., A workstation (sewing machine, table, seating chair)
* A variable cost is a cost that depends on the quantity of
output produced. It is the cost of the variable input.

Question 7

What is marginal cost and formula and does it decrease or incerase

Answer 7

The marginal cost is the change in total cost generated by one
additional unit of output

MC = Change in total cost / change in quantity.

Because there are diminishing returns to inputs in
this example. As output increases, the marginal product
of the variable input declines.
* This implies that more and more of the variable input
must be used to produce each additional unit of
output as the amount of output already produced rises.
* And since each unit of the variable input must be paid for,
the cost per additional unit of output also rises.

Question 8

ATC, AFC, AVC

Answer 8

Average total cost =
ATC = TC/Q

Average fixed cost =
AFC = FC/Q

Average variable cost =
AVC = VC/Q

Question 9

Average total cost curve. Increasing ouput has two opposing effects on average total cost

Answer 9

The spreading effect: The larger the output, the more
output over which fixed cost is spread, leading to lower
average fixed cost.

– The diminishing returns effect: The larger the output, the
more variable input required to produce additional units,
which leads to higher average variable cost.

Question 10

Marginal cost upwards because.. Average variable cost upwards because. average fixed cost downwards because.

Answer 10

Marginal cost is upward-sloping because of diminishing
returns.

2. Average variable cost also is upward-sloping but is flatter

than the marginal cost curve.
3. Average fixed cost is downward-sloping because of the spreading effect.

4. The marginal cost curve intersects the average total cost curve from below, crossing it at its lowest point.

Question 11

The minimum-cost output

Answer 11

The minimum-cost output is the quantity of output at which average total cost is lowest—the bottom of the U-shaped average total cost curve

Question 12

Three general principles that are always true about a
firm’s marginal cost and average total cost curves.

At the minimum-cost output,

At output less than the minimum-cost output

At output greater than the minimum-cost output,

Answer 12

At the minimum-cost output, average total cost is equal to
marginal cost.

2. At output less than the minimum-cost output, marginal cost is less than average total cost and average total cost is falling.
3. At output greater than the minimum-cost output, marginal cost is greater than average total cost and average total cost is rising.

Question 13

Returns to scale

There are increasing returns to scale (economies of
scale)

There are decreasing returns to scale (diseconomies
of scale)

There are constant returns to scale

Answer 13

There are increasing returns to scale (economies of
scale) when long-run average total cost declines as
output increases.
* There are decreasing returns to scale (diseconomies
of scale) when long-run average total cost increases as
output increases.
* There are constant returns to scale when long-run
average total cost is constant as output increases

Question 14

The x and y Axis and where do you find it?
of Total Product (TP), marginal cost, marginal product, total cost

Answer 14

Total Product (TP) Q Input (Q of labor) Q of Ouput (Quantity of wheat…) Technology of firm (usually given) Derive TC,

Marginal product Q Input Q output . Source is : Slope of Total product We use it to dDerive TC

Total Cost (TC) Q of ouput ouput Cost TP + FC and VC/unit Eg. Price of labor Derive MC

Marginal Cost (MC) Q Ouput Cost Slope of TC Supply curve overlaps the MC curve