MGEA01H3 Chapter Notes - Chapter 11: Fixed Cost

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erinllama288

31 Aug 2015

School

UTSC

Department

Economics for Management Studies

Course

MGEA01H3

Professor

Michael H O

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MGEA01H3 Full Course Notes

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Document Summary

Firm: is an organization that produces goods or services for sales. Production function: is the relationship between the quantity of inputs a firm uses and the. Average product of labour = total quantity of output/ total quantity of labour quantity of output it produces, for a given state of the production technology employed. Fixed input: is an input whose quantity is fixed for a period of time and cannot be varied. Variable input: is an input whose quantity the firm can vary at any time. Long run: is the time period in which all inputs can be varied. Short run: is the time period in which at least one input is fixed. Total productive curve: shows how the quantity of output depends on the quantity of the variable input employed, for a given quantity of fixed input and production technology (figure. The total product curve slopes upwards to the right, and flattens out.

Related Questions

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

- Essay Question:

Assume a firm uses two inputs in its production process: labour and capital. Using isocost and isoquant analysis, examine the possible effects of an increase in wage on the firmâs

(a) use of labour and capital

(b) long-run total and average costs.

- Problem Question:

a) Derive the cost minimizing input demands and the long-run total cost function for the following production functions assuming input prices w1 and w2:

(i) y = f(x1, x2) = 2x1 + x2

(ii) y = min(x1, 3x2)

b) For each of the production functions above, determine the short-run input demands and short run total cost function when input 2 is limited to x2 = 100 units

greencricket772

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