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ECON10004 Study Guide - Final Guide: Marginal Product, Production Function, Marginal Cost

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orangemole587
25 May 2018
School
University of Melbourne
Department
Economics
Course
ECON10004
Professor
John Freebairn, Eik Swee

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Total revenue, total cost and profit:
Total revenue = amount a firm receives for sale of its output
Total cost = amount a firm pays to buy inputs into production
Profit = total revenue
-
total cost
Total cost = explicit + implicit costs
Cost of capital as an opportunity cost:
Opportunity cost of financial capital invested in business is an important implicit cost
Economic profit < accounting profit
To be profitable, total revenue > all opportunity costs (explicit and implicit)
Production and costs:
Production function = relationship between quantity of input and quantity of output
Marginal product = increase in quantity of output obtained from an additional unit of input
Diminishing marginal product = property whereby marginal product of an input declines as quantity
of input increases
Slope of production function measure marginal product
From the production function to the total
-
cost curve:
Total
-
cost curve graphs total cost against quantity of output
Costs of production
Wednesday, 5 April 2017 10:32 PM
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Document Summary

Total (cid:396)e(cid:448)e(cid:374)ue = a(cid:373)ou(cid:374)t a fi(cid:396)(cid:373) (cid:396)e(cid:272)ei(cid:448)es fo(cid:396) sale of its output. Total (cid:272)ost = a(cid:373)ou(cid:374)t a fi(cid:396)(cid:373) pa(cid:455)s to (cid:271)u(cid:455) i(cid:374)puts i(cid:374)to p(cid:396)odu(cid:272)tio(cid:374) Oppo(cid:396)tu(cid:374)it(cid:455) (cid:272)ost of fi(cid:374)a(cid:374)(cid:272)ial (cid:272)apital i(cid:374)(cid:448)ested i(cid:374) (cid:271)usi(cid:374)ess is a(cid:374) i(cid:373)po(cid:396)ta(cid:374)t i(cid:373)pli(cid:272)it (cid:272)ost. To (cid:271)e p(cid:396)ofita(cid:271)le, total (cid:396)e(cid:448)e(cid:374)ue > all oppo(cid:396)tu(cid:374)it(cid:455) (cid:272)osts (cid:894)e(cid:454)pli(cid:272)it a(cid:374)d i(cid:373)pli(cid:272)it(cid:895) P(cid:396)odu(cid:272)tio(cid:374) fu(cid:374)(cid:272)tio(cid:374) = (cid:396)elatio(cid:374)ship (cid:271)et(cid:449)ee(cid:374) (cid:395)ua(cid:374)tit(cid:455) of i(cid:374)put a(cid:374)d (cid:395)ua(cid:374)tit(cid:455) of output. Ma(cid:396)gi(cid:374)al p(cid:396)odu(cid:272)t = i(cid:374)(cid:272)(cid:396)ease i(cid:374) (cid:395)ua(cid:374)tit(cid:455) of output o(cid:271)tai(cid:374)ed f(cid:396)o(cid:373) a(cid:374) additio(cid:374)al u(cid:374)it of i(cid:374)put. Di(cid:373)i(cid:374)ishi(cid:374)g (cid:373)a(cid:396)gi(cid:374)al p(cid:396)odu(cid:272)t = p(cid:396)ope(cid:396)t(cid:455) (cid:449)he(cid:396)e(cid:271)(cid:455) (cid:373)a(cid:396)gi(cid:374)al p(cid:396)odu(cid:272)t of a(cid:374) i(cid:374)put de(cid:272)li(cid:374)es as (cid:395)ua(cid:374)tit(cid:455) of i(cid:374)put i(cid:374)(cid:272)(cid:396)eases. F(cid:396)o(cid:373) the p(cid:396)odu(cid:272)tio(cid:374) fu(cid:374)(cid:272)tio(cid:374) to the total-(cid:272)ost (cid:272)u(cid:396)(cid:448)e: Total-(cid:272)ost (cid:272)u(cid:396)(cid:448)e g(cid:396)aphs total (cid:272)ost agai(cid:374)st (cid:395)ua(cid:374)tit(cid:455) of output. Fi(cid:454)ed (cid:272)osts = (cid:272)osts that do (cid:374)ot (cid:448)a(cid:396)(cid:455) (cid:449)ith (cid:395)ua(cid:374)tit(cid:455) of output p(cid:396)odu(cid:272)ed. Va(cid:396)ia(cid:271)le (cid:272)osts = (cid:272)osts that (cid:448)a(cid:396)(cid:455) (cid:449)ith (cid:395)ua(cid:374)tit(cid:455) of output p(cid:396)odu(cid:272)ed. A(cid:448)e(cid:396)age total (cid:272)ost = total (cid:272)ost / (cid:395)ua(cid:374)tit(cid:455) of output. A(cid:448)e(cid:396)age fi(cid:454)ed (cid:272)ost = fi(cid:454)ed (cid:272)ost / (cid:395)ua(cid:374)tit(cid:455) of output.

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Related Questions

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

The marginal product is defined as: (Points : 1)
a. the ratio of total output to the amount of the variable input used in producing the output
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

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)
a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy


d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)
a. defined as the amount that an additional unit of the variable input adds to the total revenue
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

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)
a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)
a. the marginal product of labor (L) is equal to ?1
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

The short-run cost function is: (Points : 1)
a. where all inputs to the production process are available
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

Theoretically, in a long-run cost function: (Points : 1)
a. all inputs are fixed
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)
a. marginal costs are constant as output increases
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above

Suppose that a fully automated production process can produce output according to the production function Q = 10K – 0.5K2 where Q = output and K = capital input. Assume further that the expression for the marginal product of capital, MPK, is given as MPK = 10 – K. In this production process capital costs $90 to rent (MFC = $90) and the output sells for $30 per unit (and therefore P = MR = $30).

a. Based on this information, what is the expression for the marginal revenue product of capital, MRPK in this production process? 

b. Given that the production function has a single variable input, what is the optimal quantity of capital the firm should rent (K*) given the existing rental cost of capital and price per unit of output?

c. Based on the optimal rental of capital, how much output (Q) would this company produce per production period? Total Output (Q) = ____________________.

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.