Ch. 6.2 Production in the Short Run

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Given examples of specific production situations, differentiate between short and long term production.

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The marginal product of capital: A. is equal to the increase in output obtained from a one-unit increase in capital, holding other factors constant. B. is equal to the incremental profit associated with selling one more unit of output. C. is equal to the incremental cost of employing one more unit of physical or human capital. D. is always equal to total output divided by the number of units of capital employed. E. is equal to the increase in capital necessary to generate a one-unit increase in output.

A. is equal to the increase in output obtained from a one-unit increase in capital, holding other factors constant. In general, the marginal product of an input is the increase in output obtained from an additional unit of that input. It applies to any input, most often to labor and capital.

long run

a period over which all production inputs are variable

short run

a period too brief for some production inputs to be varied

diminishing marginal product

as a variable input increases, with other inputs fixed, a point will be reached where the additions to output will eventually decline

marginal product

the change in total output of a good that results from a one unit change in input

Whenever the marginal product of a firm's only variable input was positive, but falling: A. its total product is growing at a decreasing rate. B. it will use more of the variable input until its marginal product is negative. C. it would reduce its use of the variable input. D. its total product is beyond its maximum. E. all of the other answers are true.

A. its total product is growing at a decreasing rate. Whenever the marginal product of a firm's only variable input was positive, but falling its total product is growing at a decreasing rate. Marginal product is the change in the quantity of total product resulting from a unit change in a variable input, keeping all other inputs constant. Marginal product is estimated by dividing the change in total product by the change in the variable input. Three different cases are possible: Marginal product is positive but increasing, then total product is growing at a increasing rate. Marginal product is positive but falling, then total product is growing at a decreasing rate. Marginal product is negative, then total product is decreasing.

Which of the following is a reason that marginal product will eventually begin to fall? A. limited amounts of fixed inputs B. economies of scale C. decrease in demand D. specialization E. effective use of fixed inputs

A. limited amounts of fixed inputs The reason for the marginal product to eventually fall as more units of labor are added is the fixed amount of the other inputs of production (capital, land, technology). The principle of diminishing marginal product of labor rests on the crucial assumption that the inputs of production other than labor are fixed.

Over the range of diminishing marginal product, if the variable input to a firm is increased: A. output will increase, but less than the proportion of the increase in the input. B. output will increase exactly in proportion to the increase in the input. C. According to the principle of diminishing marginal product nothing will happen to output when only the variable input is increased. D. output will increase more than the proportion of the increase in the input. E. output will increase more than the proportion of the increase in the inputs at first, but it will eventually increase less than the proportion of the increase in the input.

A. output will increase, but less than the proportion of the increase in the input. Diminishing marginal product means that output will increase, but less than the proportion of the increase in the input. That is, as a firm combines more of a variable input with a fixed input, the marginal product of the variable input eventually declines.

A production function: A. shows the relationship between inputs and the maximum output that can be produced from those inputs. B. shows the relationship between production and profits. C. shows the relationship between a firm's costs and revenues. D. shows the relationship between variable inputs and fixed inputs. E. shows the relationship between a worker's human capital and her average productivity.

A. shows the relationship between inputs and the maximum output that can be produced from those inputs A production function shows the relationship between inputs and the maximum output that can be produced from those inputs. It captures the relation between total production and the factors of production. It is often expressed in graphs and tables, but it can be expressed in mathematical terms.

According to diminishing marginal product, if all the inputs to a firm are increased in equal proportions, A. output will increase exactly in proportion to the increase in the inputs. B. The law of diminishing returns says nothing about what will happen to output when all inputs are increased in equal proportions. C. output will increase less than in proportion to the increase in the inputs. D. output will increase more than in proportion to the increase in the inputs. E. output will increase more than in proportion to the increase in the inputs at first, but it will eventually increase less than in proportion to the increase in the inputs.

B. The law of diminishing returns says nothing about what will happen to output when all inputs are increased in equal proportions. The Diminishing Marginal Product is a property whereby as the quantity of the input increases the marginal product of an input declines for a portion of the production function. In other words, in a production function with two or more inputs of production, increasing one input while holding the others constant will increase output but at a decreasing rate, beyond a certain point. Central to the property is the fact that only one input increases while holding the other inputs fixed.

The short run is that period in which firms: A. cannot increase production at all. B. are able to vary some, but not all, inputs. C. can vary inputs, but only by varying all inputs in equal proportion. D. are free to vary all inputs.

B. are able to vary some, but not all, inputs. The short run production period refers to the time horizon in which some inputs used for production are variable and the other inputs are fixed.

A firm can produce 840 gallons of paint per day with 6 workers, or 910 gallons per day with 7 workers. The marginal product of labor over this range of output (6 to 7 workers), stated in gallons per worker per day, is A. 135. B. 130. C. 70. D. 35. E. 140.

C. 70. The marginal product of labor in the production process is the increase in the quantity of output obtained from one additional unit of labor. In this case the production increases from 840 to 910 gallons per day when labor increases from 6 to 7 workers, then, the marginal product of labor is 910 - 840 = 70 gallons per day.

The long-run production period: A. is likely longer for a steel manufacturer than for a retailer who sells watches off a cart at the local mall. B. is a time when all inputs are variable. C. is characterized by all of the other answers. D. varies in length according to how capital goods are specialized.

C. is characterized by all of the other answers. Statement A is correct: The long run production period refers to the time horizon in which all inputs used for production are variable. Statement B is correct: The difference between short run and long run depends on the particular production process and the degree of specialization of the capital goods. For some firms, the short run is days or weeks. For others, the short run can last for several months or even years.

Diminishing marginal product of labor occurs when: A. the average product of labor begins to rise. B. adding another unit of labor increases output by a larger margin than the last unit of labor employed. C. all inputs are varied simultaneously in the same proportion. D. adding another unit of labor increases output, but not by as large a margin as the last unit of labor employed.

D. adding another unit of labor increases output, but not by as large a margin as the last unit of labor employed. Diminishing marginal product of labor occurs when adding another unit of labor increases output, but not by as large a margin as the last unit of labor employed. In other words, if the other inputs of production different from labor are fixed, as successive units of labor are added, the additional or marginal output attributed to each additional unit of labor will decline, by the principle of diminishing marginal product of labor. For example, given a constant piece of arable land and machinery, adding one worker will increase production but X amount, adding a second worker will increase production by Y amount, and so forth. The principle implies that the amount Y will be less than the amount X. In mathematical terms, when more units of labor are added, assuming the other inputs are fixed, the total product will increase, but at a decreasing rate, according to the principle of diminishing marginal product.

production function

the relationship between quantity of inputs and the quantity of output

Total output

the total amount of output of a good produced by the firm


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