ECO101H1 Lecture Notes - Lecture 7: Diminishing Returns, Cost Curve, Longrun
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Topic 7 production & cost schedule (week seven oct 25th-nov 1st) Outline: production function, product schedule (short run) - law of diminishing returns: cost of productions (short run) - properties of firms" cost curves: average costs. - why curves are shaped that way and their intercepts: long-run average cost curve, opportunity cost and the measurement of economic profit. Production function: relationship between output and the quantity of input. Short-run: one input (capital) is fixed; while on input (labor) can vary; Long-run: all inputs (capital, labor, etc. ) can vary. Short-run: gm can vary the amount of labor (overtime, lay-offs), but cannot vary the number of plants (selling land); Long-run: gm can vary both number of plants and amount of labor; Increase in total output divided by increase in labor input; The marginal product of a variable input, in the presence of a fixed input, eventually diminishes. e. g. numerical example.
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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