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Economics 1021A/B Lecture Notes - Lecture 9: Average Variable Cost, Marginal Product, Marginal Revenue

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coffeeant874
6 Dec 2015
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Western University
Department
Economics
Course
Economics 1021A/B
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All

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ECON 1021A/B Full Course Notes
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ECON 1021A/B Full Course Notes
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Document Summary

Relationship b/w marginal cost and average cost: when marginal cost is less than the average variable cost, then, when marginal cost is above the average variable cost, Falling mp and rising mc: falling ap and rising avc. The position of a firm"s short run cost curves depends on two (cid:1) Product curves and cost curves (cid:1) (cid:1) average variable cost decreases (cid:1) average variable cost increases (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) factors: technology (cid:1, price of resources. Long run cost (cid:1) quantities of labour and capital (cid:1) (cid:1) decreasing (cid:1) decreasing (cid:1) (cid:1) > cost of production when a firm uses the economically efficient as you increase the labour marginal product of labour as you increase the ovens marginal product of capital starts to diminish at some point (cid:1) >the increases in output that result from increasing all inputs by: average cost does not change. Three possibilities: constant returns to scale, increasing returns to scale, decreasing returns to scale.

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Related Questions

4. A firm's short-run production function describes how the

A. Maximum possible output varies as the quantity of labor hired varies in a given factory.

B. Minimum possible output varies as the quanity of labor hired varies in given factory.

C. Maximum possible output varies as a firm enlarges the size of its factory.

D. Minimum possible output varies as a firm enlarges the size of its factory.

5. For U.S. Steel, the total product curve represents the

A. maximum amount of steel attinable for each quanity of variable input hired.

B. Minimum amount of Steel attinable for each quanity of variable input hired.

C. Lowest cost of producing various amounts of steel.

D. Maximum profit when producing and selling various amounts of steel.

6. Kaiser Aluminums total product Curve will shift upward if the firm

A. Hires additonal quanities of labor and materials.

B. Pays lower wages to accuire additonal workers.

C. employs more efficient technologies in aluminum production

D. Initiates work rules leading to falling productivity of labor.

7. Margianl cost is defined as

A. total fixed costs plus total variable cost.

B. Total cost divided bt the level of output.

C. The increase in total cost as a frim produces an additonal unit of output.

D. Total cost minus total fixed cost.

8. The range over which marginal cost is decreasing is the same range over which

A. Total product is Increasing.

B. Marginal product is Increasing.

C. Total cost is increasing at an increasing rate.

D.total cost is decreasing.

9. General motors will realize diseconomics of scale if an increase in plant size causes.

A. A decrease in a long-run average total cost.

B. An increase in long-run average cost.

C. The short -run total product curve to shift upward.

D. The short-run total product curve to remain constant.

10. For Boeing, thechnological advances in the production of jetliners will tend to shift the total product and marginal product curves

A. Downward, and total cost and marginal cost curves upward.

B. Upward, and total cost and marginal cost curves downward.

C. Upward, and no change in total cost and marginal cost curves.

D. Downward, and no change in total cost and margial cost curves.

3. A firm has a long-run production function:   

(a) In the short run, K = 81 is fixed. Find the short-run production function. What is the marginal product of labor in the short-run? 

(b) If w = 10 and r = 15.24, find the short-run cost function. To do this, first, figure out how many workers are needed to produce Q units of output, and then add up the (fixed) SR cost of capital and the cost of labor as a function of Q. How many workers are needed to produce Q = 10?

(c) Write down equations for an average total cost (ATC) and average variable cost (AVC) as a function of Q. What is ATC when Q = 10? What as AVC when Q = 10?

(d) Write down the equation for the marginal cost (MC) as a function of Q. What is the marginal cost of producing Q = 10 in the short run?

(e) Verify that MC = w*MPL, evaluating the marginal product of labor from part (3a) at the number of workers needed to produce 10 units of output.

(f) In the long run, both capital and labor are variable. Find the marginal product of labor and the marginal product of capital. Find the marginal rate of technical substitution. On a properly-labeled graph, draw an isoquant for Q = 10.

(g) Does the production function exhibit increasing, decreasing, or constant returns to scale?

(h) Find the lowest cost method of producing Q = 10 (two unknowns: K and L). To do this, equate the MRTS with the input price ratio w r (one equation) and use the isoquant for Q = 10 as the second equation.

(i) Use the fact that the cost, in the long run, is wL + rK to find the LR cost of producing Q = 10. What is the long-run average cost (LRAC) at Q = 10?

(j) (Hard) More generally, use the MRTS and the production function to find the cost of producing any quantity Q. To do this, repeat the above exercise but keep Q as an (unknown) variable, and solve for K and L as functions of Q.

(k) On a properly labeled graph, depict ATC from part (3b) and LRAC from part (3j). Why is LRAC everywhere below ATC?

(l) What is the production level at which SRAC is minimized?

Question 16

  1. If price is cut and demand is elastic, total revenue will rise because

    the change in quantity demanded is greater than the percent change in price.

    the percent change in quantity demanded is greater than the change in price.

    the percent change in quantity demanded is greater than the percent change in price.

    customers can't find substitutes.

3 points

Question 17

  1. If price is cut and demand is inelastic, total revenue will fall because

    the change in quantity demanded is less than the percent change in price.

    the percent change in quantity demanded is less than the change in price.

    the percent change in quantity demanded is less than the percent change in price.

    customers can find substitutes.

3 points

Question 18

  1. If something is addictive, then

    price and demand are inversely related.

    price elasticity of demand is equal to one.

    demand is perfectly inelastic.

    demand is perfectly elastic.

3 points

Question 19

  1. In general, elasticities measure

    the change in quantity demanded when a product attribute changes.

    the change in consumer spending when income changes.

    the change in an attribute for a percentage change in price.

    the percentage change in the quantity demanded resulting from a fixed percentage change in some attribute.

3 points

Question 20

  1. Average total costs are defined as

    total costs divided by the change in output.

    total costs divided by output.

    the change in total costs when output changes.

    average variable costs plus marginal costs.

3 points

Question 21

  1. If a firm is experiencing economies of scale, then the long-run average cost curve is

    falling.

    rising.

    horizontal.

    shifting.

3 points

Question 22

  1. If average total cost is rising

    marginal cost is above average total cost.

    marginal cost is rising.

    marginal product is rising.

    marginal cost is above average total cost and is falling.

3 points

Question 23

  1. The period of time over which all inputs are variable is the

    market horizon.

    short run.

    calendar year.

    long run.

3 points

Question 24

  1. The supply chain refers to

    the supply curve.

    the process of outsourcing.

    the process of downsizing.

    the process of creating and selling a product.

3 points

Question 25

  1. When the capital (a fixed input) changes

    short-run marginal costs rise.

    short-run average total costs fall but do not shift.

    labor inputs decline.

    the short-run average total cost curve shifts.

3 points

Question 26

  1. A market of price takers is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 27

  1. A market with a single seller is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 28

  1. A market that mainly stresses product differentiation is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 29

  1. Entry into a competitive market will continue until

    economic profits are zero.

    normal profits are zero.

    when accounting losses are zero.

    a. and b. are true

3 points

Question 30

  1. Firms in an oligopoly

    act independently.

    engage in strategic behavior.

    have perfect knowledge of the behavior of others.

    openly collude.