ASSIGNMENT

1. How do economists distinguish between short-run and long-run in the theory of

production?

Economists differentiate between the short run and the long run with regard to market
dynamics as follows: 1 Short run: The number of firms in an industry is fixed (even though
firms can "shut down" and produce a quantity of... 2 Long run: The number of firms in an
industry is variable since firms can enter and exit the marketplace.

2. What are the differences between private costs and social costs?

The difference between these two is that private costs are only one part of overall social
costs. Social costs take into account not only private costs, but also the externalities that
come as a result of a given economic decision. Private costs are the costs with which we are
all familiar.

3. Explain the production function step-by-step.

A production function is a representation of the functional relationship between the

amount of input employed and the amount of output produced. This shows the technical
relationship between inputs and outputs which are in physical form. It also denotes the flow
of input that will produce the flow of output over a specific period of time.
4. Explain the nature of the cost concepts.

In order to understand the general concept of costs, it is important to know the following
types of costs:
1. Accounting costs and Economic costs
2. Outlay costs and Opportunity costs
3. Direct/Traceable costs and Indirect/Untraceable costs
4. Incremental costs and Sunk costs
5. Private costs and Social costs
6. Fixed costs and Variable costs

5. Discuss the difference between economic cost and opportunity cost.

The main difference between Economic profit and opportunity cost is that Economic profit
is the revenue received from the sale of an output and the costs of all input used
whereas opportunity costs are determined by management. Economic profit is a type of
explicit cost whereas opportunity costs are a type of implicit cost.