ECO100Y5 Chapter Notes - Chapter 7: Fixed Cost, Diminishing Returns, Marginal Cost

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Inputs that are outputs from some other firm, such as spark plugs, electricity, and steel. Intermediate products- all outputs that are used as inputs by other producers in a further stage of production. Inputs that are provided directly by nature, such as land owned or rented by the firm. Inputs that are the services of workers and managers employed by the firm. Inputs that are the services of physical capital, such as the facilities and machines used by the firm. Production function- a functional relation showing the maximum output that can be produced by any given combination of inputs. Specifies the maximum amount of output that can be obtained from any given amounts of inputs. Economic profits > accounting profits because of implicit costs. Revenues > opportunity cost = firm in that industry will be earning economic profits. = signal that resources can profitably be moved into that industry.

Related Questions

A firm chooses its output level, Q_S, through the choice of inputs. The relationship between inputs and outputs is determined by the production technology used by the firm, but the general relationship assumed to be positive. That is, as you increase the level of inputs (like labor and materials), the output will increase.

But it is also generally assumed that there are diminishing returns to any input.

Why is this?

What is the explanation for this phenomenon?

Please give me an example that demonstrates the principle of diminishing returns of inputs.

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A firm chooses its output level, QS, through the choice of inputs.The relationship between inputs and outputs is determined by the production technology used by the firm, but the general relationship assumed to be positive. That is, as you increase the level of inputs (like labor and materials), output will increase.

But it is also generally assumed that there are diminishing returns to any input. Why are there diminishing returns to any input?

What is the explanation for this phenomenon?

Please give me an example that demonstrates the principle of diminishing returns of inputs.

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

ECO100Y5 Chapter Notes - Chapter 7: Fixed Cost, Diminishing Returns, Marginal Cost

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