3.1

Question 1

Production Function

Answer 1

The relationship between the quantity of inputs a firm uses and the
quantity of output it produces.

Question 2

Inputs

Answer 2

The resources used to make outputs
* Inputs are the resources used to make outputs

Question 3

Total Product (TP)

Answer 3

The total quantity, or total output, of a particular good produced

Question 4

Marginal product (MP)

Answer 4

Extra output or added product associated with adding a unit of
variable resource (labor) to production process.

MP = Change in TP/Change in labor input

Question 5

Variable

Answer 5

CAN change in the short run
* # of employees, ingredients, etc

Question 6

Fixed

Answer 6

CANNOT change in the short run
* Acreage of land, factory size, etc

Question 7

Short Run

Answer 7

• Fixed inputs (at least 1)
• Not a set specific amount of time
• Too brief to alter plant capacity

Question 8

Long Run

Answer 8

• Variable inputs
• All inputs are variable, no fixed inputs
• Long enough for firms to alter plant capacity

Question 9

Production Relationship

Answer 9

A firm’s cost of producing depends:
* prices of the needed resources
* quantities of needed resources

Question 10

Law of Diminishing Returns

Answer 10

• Resources are of equal quality
• Technology is fixed
• Variable resources are added to fixed resources
• At some point, marginal product will fall

Question 11

Why does MP fall?

Answer 11

MP ultimately diminishes because more
workers are being used relative to the amount
of plant and equipment available.

Question 12

Average Product

Answer 12

AP shows same tendencies as MP,
* It increases, reaches maximum and then declines.
* Where MP exceeds AP, AP rises
* Where MP is less than AP, AP declines
* MP intersects AP where AP is at its maximum.
* Example: Raising your class average
* When the output one worker adds exceeds the AP of all
workers currently employed, AP will rise.

AP = TP/Units of Labor