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

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Have to figure out: quantity of production, # to hire, price to charge. Firm has 2 decision time frames: short run quantities of some resources fixed, others are variable, fi(cid:454)ed resour(cid:272)es or (cid:862)pla(cid:374)t:(cid:863) te(cid:272)h(cid:374)olog(cid:455), buildings, capital, management, variable resources: labour, short-run decisions are easily reversed. Short-run production described by: total product curve (tp) max attainable output with fixed quantity capital as quantity labour varies (more employment, more total product, marginal product curve (mp) change in tp resulting from one-unit increase variable input, ex. # of sweaters for each additional worker: average product (ap) tp per unit variable input (tp/l) Product curves: show how tp, mp and ap change as employment changes. Marginal product curve: calculated from slope of tp curve (labour/output= (cid:1842) : diminishing marginal returns: an increase variable input, mp increases (increasing marginal returns from specialization & division of labour), reaches max, then decreases (not productive)

Related Questions

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

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

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

ECON 1000 Full Course Notes

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