ECN 104 Lecture Notes - Lecture 11: Average Cost, Average Variable Cost, Marginal Product

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rubycrocodile380

23 Nov 2017

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11: behind the supply curve: inputs and costs. 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. In the short run, the production function (or total product curve) shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input. The marginal product of an input is the additional quantity of output that is produced by using one more unit of that input, holding the levels of all other inputs fixed.

Related Questions

A short-run production function assumes that

A. the level of output is fixed.

B. at least one input is a fixed input.

C. all inputs are fixed inputs.

D. all inputs can be varied.

blushtermite201

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

The following table summarizes the short-run production function for your firm. Your product sells for $10 per unit, labor costs $40per unit, and the rental price of capital is $10 per unit. Complete the following table, and then answer the accompanying questions.

L K Q MPL APL APK VMPL
0 5 0
1 5 20
2 5 60
3 5 120
4 5 160
5 5 180
6 5 190
7 5 190
8 5 180
9 5 160
10 5 120
11 5 60

(a) Which inputs are fixed inputs? Which are the variable inputs?

(b) How much are your fixed costs?

(c) What is the variable cost of producing 40 units of output?

(d) How many units of the variable input should be used to maximize profits?

(e) What are your maximum profits?

(f) Over what range of variable input usage does increase marginal returns exist?

(g) Over what range of variable input usage do decrease marginal returns exist?

(h) Over what range of variable input usage do negative marginal returns exist?

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ECN 104 Lecture Notes - Lecture 11: Average Cost, Average Variable Cost, Marginal Product

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