Unit notes and practice questions

Grade 10 Economics unit 3: Theories of Production and Cost

Everything here is for unit 3 of the Grade 10 Economics textbook: what the chapter covers, the short notes, practice questions with their answers, and the lesson video where one exists.

5
Cards: 10
Practice questions on unit 3: 49–67
The textbook pages for unit 3

What unit 3 covers

1.Theory of Production
2.Theory of Cost

Short notes for unit 3

The cards filed under this chapter on the Grade 10 Economics page. Open one at a time.

Fixed Costs in the Long RunCommon mistake

When you use it

Identify errors when analyzing costs and scale across different time horizons.

Watch out

Do not include fixed costs in the long run. All inputs and costs are variable in the long run, so TFC equals zero and TC equals TVC.

Drafted from Grade 10 Economics, pages 49-67, then checked twice before it went up

Product and Cost Curves RelationshipReference tableMP_L rises · MP_L is maximum · MP_L falls · +3

Product Curve Condition	Cost Curve Mirror	Cost Curve Condition
$MP_L$ rises	Marginal Cost ( $MC$ )	$MC$ falls
$MP_L$ is maximum	Marginal Cost ( $MC$ )	$MC$ is minimum
$MP_L$ falls	Marginal Cost ( $MC$ )	$MC$ rises
$AP_L$ rises	Average Variable Cost ( $AVC$ )	$AVC$ falls
$AP_L$ is maximum	Average Variable Cost ( $AVC$ )	$AVC$ is minimum
$AP_L$ falls	Average Variable Cost ( $AVC$ )	$AVC$ rises

When you use it

Use this reference to map production efficiency directly to per-unit cost behavior.

Watch out

The MC curve cuts both the AVC and ATC curves at their lowest points from below.

Drafted from Grade 10 Economics, pages 49-67, then checked twice before it went up

Short Run Cost MeasuresFormula

TC = TFC + TVC, \quad ATC = AFC + AVC = \frac{TC}{Q}, \quad MC = \frac{\Delta TC}{\Delta Q} = \frac{\Delta TVC}{\Delta Q}

TC = TFC + TVC, \quad ATC = AFC + AVC = \frac{TC}{Q}, \quad MC = \frac{\Delta TC}{\Delta Q} = \frac{\Delta TVC}{\Delta Q}

$TC$: Total Cost $\text{Birr}$
$TFC$: Total Fixed Cost $\text{Birr}$
$TVC$: Total Variable Cost $\text{Birr}$
$ATC$: Average Total Cost $\text{Birr per unit}$
$AFC$: Average Fixed Cost $\text{Birr per unit}$
$AVC$: Average Variable Cost $\text{Birr per unit}$
$MC$: Marginal Cost $\text{Birr per unit}$
$Q$: Quantity of output $\text{units}$
$\Delta TC$: Change in Total Cost $\text{Birr}$
$\Delta TVC$: Change in Total Variable Cost $\text{Birr}$
$\Delta Q$: Change in Output $\text{units}$

When you use it

Use these relations to compute total, average, and marginal costs of production in the short run.

Watch out

Marginal cost equals the change in TVC divided by change in Q because change in TFC is always zero in the short run.

Drafted from Grade 10 Economics, pages 49-67, then checked twice before it went up

Short Run Productivity FormulasFormula

AP_L = \frac{TP}{L}, \quad MP_L = \frac{\Delta TP}{\Delta L}

AP_L = \frac{TP}{L}, \quad MP_L = \frac{\Delta TP}{\Delta L}

$AP_L$: Average Product of Labor $\text{units per worker}$
$MP_L$: Marginal Product of Labor $\text{units per worker}$
$TP$: Total Product $\text{units}$
$L$: Labor input $\text{workers}$
$\Delta TP$: Change in Total Product $\text{units}$
$\Delta L$: Change in Labor input $\text{workers}$

When you use it

Use these equations to calculate average output per worker and the additional output generated by adding one more worker.

Watch out

Marginal product is the slope of total product. It equals average product only at the maximum point of the average product curve.

Drafted from Grade 10 Economics, pages 49-67, then checked twice before it went up

The Three Stages of ProductionReference tableStage I · Stage II · Stage III

Stage	Total Product (TP)	Marginal Product (MPL)	Average Product (APL)
Stage I	Increases at increasing then decreasing rate	Positive, reaches maximum, then falls	Increases to its maximum
Stage II	Increases at decreasing rate to maximum	Positive and falling to zero	Decreases, but remains positive
Stage III	Decreases	Negative	Decreases, remains positive

When you use it

Consult this table to identify production stages and behavior of product curves under diminishing marginal returns.

Watch out

A rational firm always operates in Stage II. In Stage III, marginal product is negative, meaning extra workers reduce total output.

Drafted from Grade 10 Economics, pages 49-67, then checked twice before it went up

Practice questions on unit 3

10 multiple-choice questions written against this chapter, each with its answer and the reason. Try one before you open the answer.

Question 1

In economics, what defines the short run period of production?

A.All factors of production are variable
B.At least one factor of production is fixed
C.Total fixed cost is zero
D.Total output is at its highest point

Show the answer and why

Answer: B At least one factor of production is fixed

Why

The short run refers to the time period over which at least one factor of production (such as land or capital) is fixed.

Question 2

A small workshop in Addis Ababa has a total fixed cost (TFC) of 100 birr and a total variable cost (TVC) of 75 birr. What is its total cost (TC)?

A.25 birr
B.75 birr
C.100 birr
D.175 birr

Show the answer and why

Answer: D 175 birr

Why

Total cost is the sum of total fixed cost and total variable cost: TC = TFC + TVC = 100 + 75 = 175 birr.

Question 3

Which curve shows all possible efficient combinations of two inputs that yield the same level of output?

A.Isoquant curve
B.Total product curve
C.Average product curve
D.Marginal cost curve

Show the answer and why

Answer: A Isoquant curve

Why

An isoquant is a curve that shows all possible efficient combinations of inputs that can yield an equal level of output.

Question 4

When the marginal product of labor (MP_L) is equal to zero, what is true about total product (TP)?

A.TP is zero
B.TP is at its maximum
C.TP is at its minimum
D.TP is decreasing at an increasing rate

Show the answer and why

Answer: B TP is at its maximum

Why

According to the relationship between production curves, MP reaches zero when TP reaches its maximum.

Question 5

A farmer in Ada'a employs 4 workers on 1 hectare of land to produce 30 quintals of teff. What is the average product of labor (AP_L)?

A.6.33 quintals
B.7.50 quintals
C.8.00 quintals
D.11.00 quintals

Show the answer and why

Answer: B 7.50 quintals

Why

Average Product of Labor is calculated as total product divided by labor: APL = TP / L = 30 / 4 = 7.5 quintals.

Question 6

A firm's total cost is 190 birr when producing 5 units, and 200 birr when producing 6 units. What is the marginal cost (MC) of the 6th unit?

A.10 birr
B.16.67 birr
C.33.33 birr
D.190 birr

Show the answer and why

Answer: A 10 birr

Why

Marginal cost is the change in total cost divided by the change in output: MC = (200 - 190) / (6 - 5) = 10 birr.

Question 7

What occurs during Stage III of the production process?

A.Marginal product is positive and rising
B.Total product increases at a decreasing rate
C.Marginal product is negative and total product declines
D.Average product is equal to marginal product

Show the answer and why

Answer: C Marginal product is negative and total product declines

Why

Stage III is the negative returns stage, where MP is negative and adding more variable inputs causes TP to decrease.

Question 8

What is the relationship between marginal product (MP_L) and average product (AP_L) when AP_L is at its maximum?

A.MPL is greater than APL
B.MPL is equal to APL
C.MPL is less than APL
D.MPL is equal to zero

Show the answer and why

Answer: B MPL is equal to APL

Why

When the average product curve reaches its maximum point, marginal product is exactly equal to average product (AP = MP).

Question 9

What does the slope of an isoquant, known as the marginal rate of technical substitution (MRTS_L,K), represent?

A.The total cost of combining labor and capital
B.The amount by which capital can be reduced when one extra unit of labor is used so output stays constant
C.The percentage change in output caused by doubling all inputs
D.The maximum quantity of output that can be produced using only capital

Show the answer and why

Answer: B The amount by which capital can be reduced when one extra unit of labor is used so output stays constant

Why

MRTS of labor for capital shows the amount by which capital input can be reduced when one additional unit of labor is added, keeping total output unchanged.

Question 10

A factory increases all of its inputs by 20 percent. If its output also increases by exactly 20 percent, the firm is experiencing:

A.Increasing returns to scale
B.Decreasing returns to scale
C.Constant returns to scale
D.Diseconomies of scale

Show the answer and why

Answer: C Constant returns to scale

Why

When increasing all inputs by a proportion 'm' results in output increasing by the exact same proportion 'm', it is called constant returns to scale.

The app holds 12 questions on this unit, marked as you go. These are the first 10.

The textbook pages for unit 3

Unit 3 runs from page 49 to page 67 of the Ministry of Education edition.

Ministry of Education edition, English, 193 pages

Download the PDF

All Grade 10 Economics short notes

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