The spreading effect- the larger the output, the more output over which xed cost is spread, leading to lower average xed cost. The diminishing returns effect- the larger the output, the more variable input required to produce additional units, which leads to higher average variable costs. All inputs are variable in the long run, this means that in the long run, xed costs may also vary. The rm will choose its xed cost in the long run based on the level of output it expects to produce. There is a trade off between higher xed cost and lower variable cost for any given output level and vice versa. At low q, low xed cost yields lower average total cost. At high q, high xed cost yields lower average total cost. The long run average total cost curve shows the relationship between output and average total cost when xed costs has been chosen to minimize cost for each level of output.

Related Questions

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

As long as profits remain positive, a firm will want to increase the quantity produced.

Question 3 options:

	1) True
	2) False

Question 4 (1 point)

Only variable costs are relevant to a firm's decision to shut down.

Question 4 options:

1) True

2) False

A competitive firm faces a downward-sloping demand for its product.

Question 1 options:

1) True

2) False

If a firm is producing a quantity along the upward sloping portion of its marginal cost curve at which marginal cost exceeds price and is earning positive economic profits, it should

Question 10 options:

1)	continue to produce this quantity.

2)	decrease the quantity produced because doing so will increase profit.

3)	increase the quantity produced because profits are still positive.

wait for the price to increase to its current marginal cost.

Ultimately, short-run supply curves are upward sloping because of

Question 12 options:

1)	the irrelevance of fixed costs to the firm's decision making.

2)	the factor-price effect.

3)	diminishing marginal returns to the variable inputs.

4)	the equality of demand and marginal revenue for competitive firms.

olivesardine69

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.

taupehound88

ECON 102 Lecture Notes - Lecture 13: Marginal Utility, Profit Maximization, Variable Cost

ECON 102 Full Course Notes

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