Chapter 7

Question 1

Marginal

Answer 1

• Refers to incremental changes, either increases or decreases.

Question 2

production function

Answer 2

• relationship between the quantity of inputs used and output produced

Question 3

Total physical product (TPP)

Answer 3

• The amount of production expected from using each input level

Question 4

Average physical product (APP)

Answer 4

• average amount of output produced per unit of input.

- TTP / Input

Question 5

Marginal physical product

Answer 5

• The additional total physical product (TPP) produced by using an extra unit of input.
• △TTP / △Input

Question 6

Stages Production Function

Answer 6

Stage 1: Increasing Marginal Returns to Labor

Stage 2: Diminishing Marginal Returns to Labor

Stage 3: Negative Marginal Returns to Labor

Question 7

Marginal Revenue

Answer 7

• the change in revenue from producing one more unit.

MR = ∆ TR / ∆ Output

Question 8

Marginal Cost

Answer 8

• change in cost associated with producing one more unit.

MC = ∆ Cost / ∆ Output

Question 9

Decision Rule

Answer 9

MR = MC leads to profit maximizaiton

Question 10

Marginal Value Product (MVP)

Answer 10

• Is the change in revenue with one more unit

= ΔTR / ΔIP

Question 11

Marginal Input Cost (MIC)

Answer 11

• The cost of buying one more unit of input.

MIC = ΔTC / ΔIP

Question 12

Equal Marginal Principal

Answer 12

• A limited input should be allocated among uses so MVPs of each unit used are equal