Some examples from this set of practice questions
1.
What are the 2 types of inputs for a firm?
Answer: - Fixed input = cannot be changed in a short run/fixed for a period of time (e.g. land) - Variable input = can be changed at any time (e.g. labor, intermediary good)
2.
What is the Production function?
Answer: relationship between quantity of input and quantity of output (for given amount of a fixed input).
3.
Explain what a Marginal product input is?
Answer: change in output generated by adding one unit of input, given an amount of other input (= marginal analysis). Can become negative (if firm hires too many employees who distract each other).
4.
Constant returns to scale = inputs increase by a given proportion, production increases more than proportionally. True or false?
Answer: False! Constant returns to scale = inputs increase by a given proportion, production increases by the same proportion
5.
What are Economies of scale?
Answer: cost advantage (more favorable terms/bargaining power) and demand advantages (network effects, e.g. value rises with number of users).
6.
What is the formula for: Average total cost (ATC)?
Answer: TC/Q. This is the average cost per unit produced.
7.
If AC > MC: AC is decreasing. True or false?
Answer: True!
8.
What does the Isoprofit curve show?
Answer: shows price quantity combinations that have the same profit.
9.
Where can we find Maximum profit?
Answer: at: Marginal Revenue = Marginal costs (MR = MC)
10.
Consumer surplus (CS) = difference between revenue and marginal cost. True or false?
Answer: False! Consumer surplus (CS) = difference between willingness-to-pay and purchase price
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