EC120 Chapter Notes - Chapter 13: Average Cost, Production Function, Marginal Cost

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1 Nov 2016

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Analyze the links between a production process and cost. Learn the meaning of average total cost and marginal cost. Examine the difference between short and long-run cost curves. Eco(cid:374)o(cid:373)ic costs are(cid:374)"t the sa(cid:373)e as accou(cid:374)ti(cid:374)g costs. Relationship between quantity of inputs used to make a good, and quantity of output of that good. The instantaneous slope increases at a decreasing rate, increases by a smaller amount each time. Increase in output from an additional unit of input. Increases at an increasing rate, as output goes up, cost to produce goes up. Marginal costs: cost of the last unit produced. Graph looks like a u, at optimal output, cost is lowest, as output is greater or less the cost is higher. Efficient scale is the quantity of output that minimizes average total cost. The most optimal output, the bottom of the u. Costs are fixed in short, not in long run.

Related Questions

If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost

iii

i and iii

ii and iv

A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

they are all barriers to entry

they all help explain why a monopolists demand and marginal revenue curves are identical

they must all be present before a monopolist may practice price discrimination

they all help explain why a firms short run average total cost curve is U-shaped

#10

The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:

to both perfectly competitive firms and monopolies

only to monopolies

only to perfectly competitive firms

only to firms that can employ discriminatory pricing strategies

#11

A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:

is operating at maximum total profit

is operating at a loss that could be reduced by shutting down

is operating at a profit that could be increased by producing more output

is operating at a loss that is less than the loss incurred by shutting down

#12

Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:

produce 48 units of output, charge a price of $110, and earn a total profit of $5280

produce 48 units of output, charge a price of $110, and earn a total profit of $2744

produce 52 units of output, charge a price of $134, and earn a total profit of $5322

produce 52 units of output, charge a price of $134, and earn a total profit of $4016

magentabuffalo597

Question:

Evaluate the following statement:

In the short-run, information about a perfectly competitive firm's fixed costs is needed to determine both the profit-maximizing level of output and the amount of profit earned when producing that level of output.

Answer:

The objective of a firm is to maximize profits. In determining output, the firm may be subject to two constraints: costs of production and consumer demand. The price that a perfectly competitive firm may sell its products, is determined by consumer demand. Production costs are determined by the technology used. Profits are the difference between total revenues and total costs. Pertaining to short-run profit maximization, firms maximize profits by choosing the output level where its marginal revenue equals its marginal cost.

Farnham, P. G. (2014). Economics for Managers (3rd Ed.).

I need a peer reply for this, please.

sangriacockroach968

1. Theoretically, in a long-run cost function:

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

2. The short-run cost function is:

a. where all inputs to the production process are variable

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 decisions

d. crucial in making optimal investment decisions in new production facilities

3. Break-even analysis usually assumes all of the following except:

a. in the short run, there is no distinction between variable and fixed costs.

b. revenue and cost curves are straight-lines throughout the analysis.

c. there appears to be perfect competition since the price is considered to remain the same regardless of quantity

d. the straight-line cost curve implies that marginal cost is constant.

maroonllama628

EC120 Chapter Notes - Chapter 13: Average Cost, Production Function, Marginal Cost

EC120 Full Course Notes

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