Question

A list of economic terms is shown below. Match each term with its definition.

A. Production

B. Physical Capital

C. Short run

D. Long run

E. Marginal product

F. Specialization

G. Law of diminishing returns

Place the letter that is shown in front of each term above with that? term's definition. Use only the appropriate letter. Do not write out the term or include the period after the letter.

Letter	Definition
1.	?Increases in inputs eventually lead to less additional output.
2.	??Machines and equipment that can be used for production.
3.	??Period of time when at least one of a? firm's inputs is fixed.
4.	?The process of transforming inputs into output.
5.	??The change in total production associated with using one more unit of input.
6.	??The result of workers developing a certain skill set in order to increase total productivity.
7.	??Period of time when all of a? firm's inputs can be varied.

Answer 1

(1) G

As more of the variable factors is added, eventually additional output from last unit of the input starts to fall, leading to decreasing marginal product. This is called law of diminishing returns.

(2) B

Machines, plant and equipment comprise physical capital.

(3) C

In short run, at least one input is fixed while other inputs vary with output.

(4) A

(5) E

Marginal product = Change in output / Change in input

(6) F

(7) D

In long run, there are no fixed inputs.