ECN 104 Lecture Notes - Lecture 8: Fixed Cost, Diminishing Returns, Variable Cost
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5 Dec 2016
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A production function is the relationship between the quantity of inputs a firm uses and the quantity of output it produces. A fixed input is an input whose quantity is fixed for a particular period and cannot be varied. A variable input is an input whose quantity the firm can vary at any time. The long run is the period in which all inputs can be varied. The short run is the period in which at least one input is fixed. The total product curve (or production function) shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input. Production function and tp curve for alec and janet"s farm. Adding a 2nd worker leads to an increase in output of 17 bushels. Adding a 7th worker leads to an increase in output of only 7 bushels.
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The law of eventually diminishing marginal returns: (Points : 1)
a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y d. None of the above |
b. the marginal rate of technical substitution c. equal to MPx/MPy d. all of the above e. none of the above |
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained d. a and b e. a and c |
b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above |
b. the average product of labor (L) is equal to ?2 c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent d. a and b e. a and c |
b. relevant to decisions in which one or more inputs to the production process are fixed c. not relevant to optimal pricing and production output decision facilities d. crucial in making optimal investment decisions in new production facilities e. none of the above |
b. all inputs are considered variable c. some inputs are always fixed d. capital and labor are always combined in fixed proportions |
A linear total cost function implies that: (Points : 1) |
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above