PROFIT MAXIMIZING FIRM

Question 1

What is the definition of production in economics?

Answer 1

Production is the process of converting inputs into outputs to create goods and services.

Question 2

What are the primary inputs in the production process?

Answer 2

The primary inputs are land, labor, capital, and entrepreneurship.

Question 3

True or False: Outputs are the final goods and services produced from inputs.

Answer 3

True

Question 4

Fill in the blank: In the short run, at least one input is ______.

Answer 4

fixed

Question 5

What is the difference between the short run and the long run in production?

Answer 5

In the short run, at least one input is fixed, while in the long run, all inputs can be varied.

Question 6

What is meant by diminishing marginal returns?

Answer 6

Diminishing marginal returns occur when adding an additional factor of production results in a smaller increase in output.

Question 7

What is a production function?

Answer 7

A production function is a mathematical representation that shows the relationship between inputs and the maximum output that can be produced.

Question 8

Which input is generally considered the most flexible in the long run?

Answer 8

Labor is generally considered the most flexible input in the long run.

Question 9

What is total product?

Answer 9

Total product is the total quantity of output produced by a firm using a given quantity of inputs.

Question 10

True or False: In the long run, firms can adjust all inputs to optimize production.

Answer 10

True

Question 11

What is average product?

Answer 11

Average product is the output produced per unit of input, calculated by dividing total product by the number of units of input used.

Question 12

What does the term ‘fixed costs’ refer to?

Answer 12

Fixed costs are expenses that do not change with the level of output produced.

Question 13

What are variable costs?

Answer 13

Variable costs are expenses that vary directly with the level of output produced.

Question 14

Fill in the blank: The long run is a period in which all factors of production can be ______.

Answer 14

changed

Question 15

What is marginal product?

Answer 15

Marginal product is the additional output produced by adding one more unit of a specific input while keeping other inputs constant.

Question 16

What is the law of variable proportions?

Answer 16

The law of variable proportions states that as more units of a variable input are added to a fixed input, the output will increase up to a certain point, beyond which the marginal returns will decline.

Question 17

True or False: In the short run, firms can change their fixed inputs.

Answer 17

False

Question 18

What is the relationship between inputs and outputs known as?

Answer 18

The relationship is known as the production relationship.

Question 19

What is the significance of the production possibilities frontier?

Answer 19

The production possibilities frontier illustrates the maximum feasible quantity of two goods that can be produced with available resources.

Question 20

What are economies of scale?

Answer 20

Economies of scale are the cost advantages that a firm experiences as it increases its level of output.

Question 21

What are diseconomies of scale?

Answer 21

Diseconomies of scale occur when a firm grows so large that the costs per unit increase.

Question 22

Fill in the blank: The point at which total product is maximized is called the ______ point.

Answer 22

optimal

Question 23

What is the concept of opportunity cost?

Answer 23

Opportunity cost is the value of the next best alternative that is forgone when making a decision.

Question 24

True or False: Short-run production decisions are often based on fixed costs.

Answer 24

True

Question 25

What is the significance of the break-even point in production?

Answer 25

The break-even point is the level of production at which total revenues equal total costs, resulting in neither profit nor loss.

Question 26

What are fixed inputs?

Answer 26

Inputs that do not change with the level of output.

Question 27

What are variable inputs?

Answer 27

Inputs that change with the level of output.

Question 28

True or False: Fixed inputs can be altered in the short run.

Answer 28

False.

Question 29

What is an example of a fixed input?

Answer 29

Rent for factory space.

Question 30

What is an example of a variable input?

Answer 30

Raw materials used in production.

Question 31

Fill in the blank: The total cost of production includes both fixed and __________ costs.

Answer 31

variable.

Question 32

What are explicit costs?

Answer 32

Direct, out-of-pocket expenses for resources.

Question 33

What are implicit costs?

Answer 33

Opportunity costs of using resources owned by the firm.

Question 34

True or False: Implicit costs are recorded in financial statements.

Answer 34

False.

Question 35

Which type of cost is typically easier to quantify: explicit or implicit?

Answer 35

Explicit.

Question 36

Fill in the blank: __________ costs are associated with the use of owned resources.

Answer 36

Implicit.

Question 37

What is the main difference between explicit and implicit costs?

Answer 37

Explicit costs involve direct payments, while implicit costs represent lost opportunities.

Question 38

True or False: All fixed costs are explicit costs.

Answer 38

False.

Question 39

What is an example of an implicit cost?

Answer 39

The income foregone from not renting out a building owned by the firm.

Question 40

What is the relationship between fixed inputs and long-term production?

Answer 40

Fixed inputs can be adjusted in the long term.

Question 41

Fill in the blank: __________ costs must be paid regardless of the level of production.

Answer 41

Fixed.

Question 42

In the short run, which type of cost is considered a sunk cost?

Answer 42

Fixed costs.

Question 43

What happens to variable costs as production increases?

Answer 43

They increase.

Question 44

True or False: A firm can increase its variable inputs without affecting fixed inputs.

Answer 44

True.

Question 45

Which type of cost is typically associated with labor in a production process?

Answer 45

Variable costs.

Question 46

What is the concept of opportunity cost?

Answer 46

The cost of the next best alternative foregone.

Question 47

Fill in the blank: __________ costs are often considered when evaluating business decisions.

Answer 47

Implicit.

Question 48

True or False: All implicit costs are fixed costs.

Answer 48

False.

Question 49

What role do fixed and variable inputs play in determining overall production costs?

Answer 49

They together define the total cost structure of production.

Question 50

What is the significance of understanding fixed and variable inputs in business?

Answer 50

It helps in budgeting and financial planning.

Question 51

Which costs are more controllable in the short run: fixed or variable?

Answer 51

Variable costs.

Question 52

What is the primary focus when calculating economic profit?

Answer 52

Both explicit and implicit costs.

Question 53

What is total product?

Answer 53

Total product refers to the total quantity of output produced by a firm using a given quantity of inputs.

Question 54

What is average product?

Answer 54

Average product is the total product divided by the number of units of a variable input used.

Question 55

What is marginal product?

Answer 55

Marginal product is the additional output produced as a result of employing one more unit of a variable input.

Question 56

True or False: Marginal product can be negative.

Answer 56

True

Question 57

Fill in the blank: The formula for average product is ___ divided by the quantity of input used.

Answer 57

Total product

Question 58

What happens to marginal product as more units of input are added, assuming other inputs remain constant?

Answer 58

Marginal product initially increases, then may decrease due to diminishing returns.

Question 59

Define diminishing marginal returns.

Answer 59

Diminishing marginal returns occur when the addition of input results in a smaller increase in output.

Question 60

How is total product calculated?

Answer 60

Total product is calculated by summing the outputs produced at each level of input usage.

Question 61

True or False: Average product can never exceed marginal product.

Answer 61

False

Question 62

What is the relationship between marginal product and average product when average product is increasing?

Answer 62

When average product is increasing, marginal product is above average product.

Question 63

What does it indicate if marginal product is less than average product?

Answer 63

It indicates that average product is decreasing.

Question 64

What is the significance of the point where marginal product equals average product?

Answer 64

It is the point at which average product is maximized.

Question 65

Fill in the blank: The total product curve typically has a ___ shape due to the law of diminishing returns.

Answer 65

S-shaped

Question 66

What can cause an increase in total product?

Answer 66

An increase in the quantity or quality of inputs can cause an increase in total product.

Question 67

What is the unit of measurement for total product?

Answer 67

Total product is typically measured in physical units of output, such as tons or units produced.

Question 68

Define the term 'production function'.

Answer 68

A production function describes the relationship between inputs used in production and the resulting output.

Question 69

What is the impact of technological advancement on total product?

Answer 69

Technological advancement can increase total product by improving the efficiency of inputs.

Question 70

True or False: Average product can be calculated for both fixed and variable inputs.

Answer 70

True

Question 71

What is the average product if total product is 100 and 5 units of input are used?

Answer 71

20

Question 72

How do you determine the marginal product from total product data?

Answer 72

Marginal product is determined by calculating the change in total product resulting from a one-unit increase in input.

Question 73

What is the typical behavior of marginal product in the short run?

Answer 73

Marginal product usually increases initially and then decreases due to diminishing returns.

Question 74

Fill in the blank: When total product is at its maximum, marginal product is ___ .

Answer 74

Zero

Question 75

What is the graphical representation of total product, average product, and marginal product?

Answer 75

They are typically represented on a graph with total product as a curve, and average and marginal product as lines.

Question 76

What does a downward-sloping marginal product curve indicate?

Answer 76

It indicates diminishing marginal returns as more of the input is used.