TOPIC 6: OBJECTIVES OF FIRMS; COST & REVENUE

Question 1

Short-run production

Answer 1

Short-run production is when there is at least 1 fixed factor input.

Fixed factors are inputs that cannot be changed in quantity within the time period.

The cost incurred from using the fixed factor inputs are known as fixed costs.

Fixed costs remain the same when output increases and are incurred even when output is zero.

Question 2

Long-run production

Answer 2

Long-run production is when all factor inputs can be varied.

Variable factors are inputs that can be changed within the time period.

The cost incurred from using the variable factor inputs are known as variable costs.

Variables costs increase as ouput increases and are not incurred when output is zero.

Question 3

[Definition] Marginal Cost (MC)

Answer 3

Marginal cost is the additional total cost incurred with the production of one more unit of output