ECO101H1 Lecture Notes - Lecture 7: Marginal Cost, Marginal Product, Diminishing Returns

23 views7 pages

redelephant995

18 Feb 2017

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

elizabethkandelaki and 40134 others unlocked

ECO101H1 Full Course Notes

Verified Note

98 documents

Document Summary

To answer, must first understand firms" cost schedules. Relates output to quantity of inputs (capital, labour) One input (capital) is fixed, while one input (labour) can vary. Gm can vary amount of labour (overtime, lay-offs) Gm can vary number of plants and amount of labour. Law of diminishing returns: the marginal product of a variable input, in the presence of a fixed input, eventually diminishes. Marginal product declines variable input: labour (chefs) fixed input: capital (kitchen/ovens) Total fixed cost (tfc): total cost of fixed input. Increase in total cost / increase in output. Mc = tc/ output (also known as marginal product or mp) *fixed costs do not change, variable costs do change. Observations: law of diminishing returns (short run) mp eventually , mp mc , mp mc . The marginal product of labour is at its maximum, mc is at its minimum. Mc interests atc at minimum of atc because.

Related Questions

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.

constant costs

increasing returns to scale

constant returns to scale

isocost curve

decreasing returns to scale

isoquant

diseconomies of scale

long-run average cost

economies of scale

long-run marginal cost

economies of scope

marginal rate of technical substitution

expansion path

short-run expansion path

___A curve that displays all the various combinations of inputs that will produce a given amount of output.

___The rate at which one input is substituted for another along an isoquant.

___Line that shows all the possible combinations of inputs that can be purchased for a given total cost.

___A curve showing all of the cost-minimizing levels of input usage for various levels of output.

___When the usage of all inputs is increased by an equal proportionate amount, output ___increases by exactly the same proportion.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a larger proportionate amount.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a smaller proportionate amount.

___Cost per unit in the long run.

___The change in long-run total cost per unit change in output.

___When long-run average cost falls as output increases.

___When long-run average cost increases with increases in output.

___Long-run average and marginal costs are equal for all levels of output.

___The situation in which the joint cost of producing two goods is less than the sum of the separate costs of producing the two goods.

___Horizontal line showing the cost-minimizing input combinations for various output levels when capital is fixed in the short run.

aquamarineguinea-pig889

The following table summarizes the short-run production function for your firm. Your product sells for $8 per unit, labor costs $12 per unit, and the rental price of capital is $20 per unit. Complete the following table and then answer the accompanying questions.

1. Which inputs are fixed inputs? Which are variable inputs?

2. What is the variable cost of producing 60 units of output?

3. How many units of the variable input should be used to maximize profits? Why?

4. What are your maximum profits?

5. Over what range of variable input usage does increase marginal returns exist?

6. Over what range of variable input usage do decrease marginal returns exist?

Output	Units of Capital	Units of Labor	Marginal Product of Labor	MRP of Labor
0	6	0	--
10	6	1
30	6	2
60	6	3
80	6	4
90	6	5
95	6	6
95	6	7
90	6	8
80	6	9
60	6	10
30	6	11

apricotox859

ECO101H1 Lecture Notes - Lecture 7: Marginal Cost, Marginal Product, Diminishing Returns

ECO101H1 Full Course Notes

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO101H1 Lecture Notes - Lecture 6: Average Cost, Average Variable Cost, Marginal Cost

ECO101H1 Lecture Notes - Diminishing Returns, Marginal Cost, Marginal Product

ECO101H1 Lecture 12: Lecture 12-Production and Cost Schedules

Related Questions