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Production function

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  • Pages: 3
  • Word count: 639
  • Category: Economics

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Question No. 1P: 219
Explain the difference between short run and long run production function; cite one example of this difference in a business situation. The short run production function shows the maximum quantity of a good or service that can be produced by a set of inputs, assuming the amount of at least one of the inputs used remains unchanged. While a long run production function shows the maximum quantity of a good or service that can be produced by a set of inputs, assuming the firm is free to vary the amount of all the inputs being used. Example for this difference

At furniture Manufacturer Company, the variable inputs are labor and row material while the fixed input is the machinery. It is a short-run production functions if the company change only the variable inputs but if the company change all the inputs including the fixed one it’s called a Long-run Production function.

Question No. 2P: 219
Define the Law of diminishing returns. Why this law is considered a short-run phenomenon? The law of diminishing stated that: As additional units of a variable input are combined with a fixed input, at some point the additional output starts to diminish. And it’s a short-run phenomenon because as stated earlier one of the inputs is fixed.

Question No. 3P: 219
What are the key points in a short-run production function that delineate the three stages of production? Explain the relationship between the law of diminishing returns and the three stages of production? Stage I occur at the range from zero to where the Average Product reaches its maximum where AP = MP. Also the diminishing of return take effect when MP reaches its maximum at stage one. Stage II occur at the range from the last of stage I to the point where Total Product is maximized and MP = 0. Stage III continues on from the last of stage II.

Problem No. 1P: 220
Indicate whether each of the following statement is true or false. Explain
why. a. When the law of diminishing return takes effect as firm’s average product will start to decrease (False) When the law of diminishing return takes effect, Average product will keep increasing until AP = MP “The end of stage I at diminishing return”

b. Decrease in return to scale occurs when a firm has to increase all its inputs at an increasing rate to maintain a constant rate of increase in its output. (True) because eventually the proportional increase in output will become less than the proportional increase in inputs as of the coefficient of output elasticity will be Eq < 1

c. A linear short run production function implies that the law of diminishing return does not take effect over the range of output being considered. ??? (I do not know the answer)

d. Stage one of production processes ends at the point where the low diminishing return occur (False) Stage one of Production Processes ends where the Average Product reaches its maximum as of AP = MP. After the law of diminishing take effect.

Problem No. 2P: 220
The oceanic Pacific fleet has just decided to use a pole-and-Line method of fishing instead of gill netting to catch tuna. The latter method involves the use of miles of nets strung out across the ocean and therefore entraps other sea creatures besides tuna. Concern for endangered species was one reason for this decision, but perhaps more important was the fact that the major tuna canneries in the United States will no longer accept tuna caught by gill netting. Oceanic Pacific decided to conduct a series of experiments to determine the amount of tuna that could be caught with different crew sizes. The results of these experiments follow. a. Determine the point at which diminishing returns occurs.

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