ECON 101 Lecture Notes - Lecture 12: Perfect Competition, Longrun, Marginal Revenue

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harlequinmink794

19 Nov 2020

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In the long run, costs behave differently. Firms can adjust all of its inputs in any way it wants. In the long run, there are no fixed inputs or fixed costs. All input and all costs are variable. Firms must decide what combination of inputs to use in producing any given level of output the firm will choose the input mix with the lowest cost. This yields a long-run average total cost curve. The relationship between the output and the atc when fixed costs are chosen to minimize total cost for each level of output. Lratc curves for industries usually exhibit three basic phases: Increasing returns to scale: output range with declining lratc. This is also known as economies of scale. Economies of scale often arise due to the gains from specialization. The greatest opportunities for increased specialization occur when a firm is producing at a relatively low level of output.

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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

36) A firm encountering economies of scale over some range of output will have a:

a) rising long-run average cost curve.

b) falling long-run average cost curve.

c) constant long-run average cost curve.

d) rising, then falling, then rising long-run average cost curve.

37) When a firm doubles its inputs and finds that its output has more than doubled, this is known as:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) a violation of the law of diminishing returns.

38) The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:

a) economies of scale.

b) normative economies.

c) diminishing marginal returns.

d) an increasing marginal product of labor.

39) If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) increasing the average total costs.

40) Economies and diseconomies of scale explain why the:

a) short-run average fixed cost curve declines so long as output increases.

b) marginal cost curve must intersect the minimum point of the firm's average total cost curve.

c) long-run average total cost curve is typically U-shaped.

d) short-run average variable cost curve is U-shaped.

jadeshark411

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;

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ECON 101 Lecture Notes - Lecture 12: Perfect Competition, Longrun, Marginal Revenue

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