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ECON 1000 Chapter Notes - Chapter 11: Ceteris Paribus, Diminishing Returns, Marginal Cost

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purpleskunk460
14 May 2016
School
York University
Department
Economics
Course
ECON 1000
Professor
Ardeshir Noordeh

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Document Summary

A period of time in which there is a fixed scale of production. In the short run, a firm"s plant is fixed (a fixed scale) The firm can increase its output by hiring more workers. In the long run, the firm can increase its output by changing the plant size and by hiring more people. Relationship between output and the quantity of labour employed. In the short run where some factor of production is fixed. The total amt. that is produced during a given period of time. The additional output that can be produced by adding one more unit of a specific input, ceteris paribus, holding all other inputs constants. As we vary the quantity of labor, with capital being fixed, output changes: increasing marginal returns between 0 and l1, diminishing marginal returns between l1 and l3, negative marginal returns after l3. First at an increasing rate and then at a decreasing rate.

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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.

 Consider a firm whose technology is given by the production function: y = f (K,L) = (N+1)L + 2√K. Assume that input prices for labour, L, and capital, K, are w = 1 and r = 2 respectively. a)Find the firm’s short run total cost function assuming the firm cannot hire more workers nor fire its only worker, i.e. L = 1 is fixed. 

b)Find the firm’s short run marginal cost, average variable cost and average fixed cost. Draw the three of them in the same graph. What is the short-run supply of the firm?

c)Find the firm’s long run total cost function, i.e. when all factors are variable. 

d)Find the firm’s long run marginal cost and average cost. Draw them in the same graph. What is the long-run supply of the firm?

TRUE OR FALSE

____ 16. The law of diminishing marginal returns provides an explanation for why Average Cost eventually increases as output is expanded in the short run.

____ 17. The marginal product is the increase in output per additional unit of input.

____ 18. As output increases, marginal cost increases, reaches a maximum, and then falls.

____ 19. The marginal product curve rises when the marginal cost curve rises.

____ 20. If a firm is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level.