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ECON 1126 Chapter Notes - Chapter 11-13: Marginal Product, Market Power, Demand Curve

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plumsheep685
26 Jun 2016
School
Northeastern University
Department
Economics
Course
ECON 1126
Professor
Jelena Nikolic

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Document Summary

Atc = total cost / q of output produced mc = change in tcost / change in quantity prod. Marginal prod of labor - add output produced from hiring 1 more worker. Law of diminishing returns-more input added to same amt of fixed input -- marginal product falls. Q can still increase -- but add amt per worker starts to decreases. Avg prod of labor - total output / q of workers. Mpl > apl -- apl increasing mpl < apl --apl decreasing = @ apl max. Mc falls then rises u-shaped mc curve mpl rises then falls. All costs are variable tc = vc & atc = avc. Economies of scale - long run atc falls as output increases. Purchase inputs at lower costs than other competitors. Perfectly competitive markets: many buyers and sellers. Price taker: can"t control prices of goods controlled by market. Profit max - difference b/w tr & tc is largest.

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Related Questions

1) The supply curve of a perfectly competitive firm is

a) Its entire MC curve

b) The upward-sloping portion of its MC Curve

c) It's MC Curve above shutdown point

d) Its MR Curve

2. The Long Run supply curve in a constant cost industry is

a) Upward sloping and linear

b) Downward sloping and linear

c) Horizontal and linear

d) Concave upwards

3. The curve which shows different combinations of inputs that yield the same level of output, is called

a) An isoquant

b) An isocost curve

c) Production function

d) Production possibility curve

4. When labor used is 12 units and output is 36, then

a) The marginal product of labor is 3

b) The total product of labor is 1/3

c) The average product of labor is 3

d) None of the above

5. Say the average product of 6 workers is 15. If the marginal product of the 7th worker is 18, then

a) Marginal product is falling

b) Marginal product is constant

c) Average product is rising

d) Average product is falling

6. Which one of the following statements is TRUE?

a) APL cuts the MPL curve from above

b) MPL cuts the APL curve from above, at the maximum point of the APL curve

c) Average and marginal product do not intersect

d) APL cuts the MPL curve from below.

7. The MRTS is equal to the

a) The slope of the total product curve

b) Change in output divided by the change in labor

c) Change in output minus the size of capita

d) Ratio of the marginal products of the inputs

Use the following information on a hypothetical short-run production function to answer questions A-C.

The price of labor is $20 per day.

Ten units of capital are used each day, regardless of output level.

The price of capital is $50 per unit.

(A). Calculate the marginal product (MP) and average variable product (AP) of each unit of labor input.
(B). Calculate total (TC), average total (ATC), average variable (AVC), and marginal costs (MC).
(C). Can you tell where diminishing marginal returns sets in?

Labor (L) Output (Q) MP AP TC ATC AVC MC
5 120 --         --
6 140            
7 155            
8 165            
9 168            

Q1) Soundscape Enterprises manufactures Sonoblast, a device that produces a high-pitched reminder to telemarketers that they have once again disturbed you just when you were sitting 1⁄2 down to dinner. The production function for Sonoblasts is given by the formula Q = 2KL where Q is in units of output per period, K is in machine-weeks per period, and L is in labour- weeks per period. The machine rental rate r is $512 per machine-week and the wage rate w is $128 per labour-week. In the short run, K is fixed at 4 machine-weeks per period.

a. Give the formulas for the short-run production function and the marginal product of labour (MPL) function.

b. Express variable cost (VC), total cost (TC), and marginal cost (MC) as functions of L and as functions of Q; and average variable cost (AVC), average fixed cost (AFC) and average total cost (ATC) as functions of Q.

c. At what level of Q is ATC minimized? What are the values of ATC and of MC at this level of output?

d. If K is increased to a fixed 16 units, at what level of Q is ATC minimized, and what are the values of ATC and of MC at this level of output?

e. In the long run, with all inputs variable, what is the optimal K/L ration with input prices unchanged? How many units of L and of K would be required to produce the levels of output in 1c and in 1d and what is the average cost of producing Sonoblasts in each case? Explain the relation between your results here and those for 1c and 1d.