ECON 1000 Lecture Notes - Lecture 11: Sunk Costs, Average Cost, Marginal Product

51 views3 pages

lavenderkoala286

22 Jan 2019

School

Department

Course

Professor

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

castroariane563 and 39059 others unlocked

ECON 1000 Full Course Notes

Verified Note

10 documents

Document Summary

Chapter 11 output and costs: decision time frame, the firm makes many decisions to achieve its main objective: profit, all decisions can be placed in two time frames: maximization. The long run: the short run is a time frame in which the quantity of one or more resources used in production is fixed. For most firms, the capital, called the firm"s plant, is fixed in the short run. Other resources used by the firm (such as labour, raw materials, and energy) can be changed in the short run. Short-run decisions are easily reversed: the long run is a time frame in which the quantities of all resources including the plant size can be varied. Long-run decisions are not easily reversed: a sunk cost is a cost incurred by the firm and cannot be changed. If a firm"s plant has no resale value, the amount paid for it is a sunk cost. Sunk costs are irrelevant to a firm"s current decisions.

Related Questions

Short-run costs are calculated with at least one input fixed and thus with a fixed cost. Long-run costs are calculated with all the inputs variable.

Provide examples and explanations of some of the following short-run and long-run circumstances of "typical" firms:

1) A firm with a small capacity to produce relative to the demand in the market;

2) A firm with a large capacity to produce relative to the demand in the market;

3) A firm that experiences economies of scale as it increases its plant capacity;

copperelk393

A basic distinction between the long run and the short run is that:

A) If a firm produces no output in the long-run, it still incurs a loss.

B) The opportunity costs of production are lower in the short-run than in the long-run.

C) In the long-run some inputs are fixed, while in the short-run all inputs are variable.

D) In the short-run, complete adjustment of all inputs is impossible, while in the long-run all inputs can be adjusted.

bronzellama426

Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

According to the definition of the short-run in Investopedia, the short-run, in economics, expresses the concept that an economy behaves differently depending on the length of time it has to react to certain stimuli. The short-run does not refer to a specific duration of time but rather is unique to the firm, industry, or economic variable being studied. A key principle guiding the concept of short-run and long-run is that in the short-run, firms face both variable and fixed costs, which means that output, wages and prices do not have full freedom to reach a new equilibrium. Most businesses make decisions not only about how many workers to employ at any given point in time (i.e. the amount of labor) but also about what scale of an operation (i.e. size of factory, office, etc.) to put together and what production processes to use. In contrast, economists often define the short-run as the time horizon over which the scale of operation is fixed and the only available business decision is the number of workers to employ. Technically, the short-run could also represent a situation where the amount of labor is fixed and the amount of capital is variable, but this is fairly uncommon. The logic is that even taking various labor laws as given, it's usually easier to hire and fire workers than it is to significantly change a major production process or move to a new size of factory or office. In the short-run, one factor of production is fixed, e.g. capital. This means that if a firm wants to increase output, it could employ more workers, but not increase capital in the short-run (it takes time to expand.) Therefore in the short-run, we can get diminishing marginal returns, and marginal costs may start to increase quickly. Also, in the short-run, we can see prices and wages out of equilibrium, e.g. sudden rise in demand, may lead to higher prices, but firms don't have the capacity to respond and increase supply.

Tejvan Pettinger. (2015). Short-run, long-run, very long-run. Glossary Terms. Economics help blog. NY: Helping to Simplify Economic.
Retrieved from: http://www.economicshelp.org/blog/glossary/short-run-long-run-very-long-run/
Short-Run. Short-Run Definition | Investopedia
Retrieved from http://www.investopedia.com/terms/s/shortrun.asp#ixzz4KO1YXsri

I need a peer reply for this, please.

taupeswan96

ECON 1000 Lecture Notes - Lecture 11: Sunk Costs, Average Cost, Marginal Product

ECON 1000 Full Course Notes

Document Summary

Get access

Related Documents

ECON 1000 Lecture Notes - Lecture 4: Sunk Costs, Average Cost, Marginal Cost

ECON 1000 Chapter Notes - Chapter 11: Diminishing Returns, Variable Cost, Average Variable Cost

ECON 1000 Chapter Notes - Chapter 11: Average Cost, Marginal Cost, Marginal Product

Related Questions