14.01 Principles of Microeconomics, Fall 2007 ChiaHui Chen October 15, Lecture 13. Cost Function


 Nelson Rose
 2 years ago
 Views:
Transcription
1 ShortRun Cost Function. Principles of Microeconomics, Fall ChiaHui Chen October, ecture Cost Functions Outline. Chap : ShortRun Cost Function. Chap : ongrun Cost Function Cost Function et w be the cost per unit of labor and r be the cost per unit of capital. With the input abor () and Capital (K), the production cost is w + r K. A cost function C(q) is a function of q, which tells us what the minimum cost is for producing q units of output. We can also split total cost into fixed cost and variable cost as follows: C(q) = FC + V C(q). Fixed cost is independent of quantity, while variable cost is dependent on quantity. ShortRun Cost Function In the shortrun, firms cannot change capital, that is to say, r K = const. Recall the production function given fixed capital level K in the short run (refer to ecture ) (see Figure ). Suppose w =, the variable cost curve can be derived from Figure. Adding r K to the variable cost, we obtain the total cost curve (see Figure ). Average total cost is TC FC + V C rk w(q; K) ATC = = = +. q q q q With the definition of the average product of labor: q AP =, Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
2 ShortRun Cost Function Q 9 Figure : Short Run Production Function. TC C VC 9 q Figure : Short Run Cost Function. Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
3 ShortRun Cost Function we can rewrite ATC as in which the average variable cost is ikewise, we rewrite the marginal cost: rk w ATC = +, q AP V C w(q; K) w = =. q q AP dtc dv C d(q) w w MC = = = w = =. dq dq dq q MP In ecture, we discussed the relation between average product of labor and marginal product of labor (see Figure ). We draw the curves for AV C and 9 AP MP 9 Figure : Average Product of abor and Marginal Product of abor. MC in the same way (see Figure ). The relation between MC and AV C is: If AV C decreases; if AV C increases; MC < AV C, MC > AV C, Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
4 ongrun Cost Function MC ATC C AVC 9 Figure : Average Cost, Average Variable Cost, and Marginal Cost. if AV C is minimized. MC = AV C, Now consider the total cost. Note that the difference between ATC and AV C decreases with q as the average fixed cost term dies out (see Figure ). The relation between MC and ATC is: If AT C decreases; if AT C increases; if AT C is minimized. MC < ATC, MC > ATC, MC = ATC, Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
5 ongrun Cost Function.. k Figure : Isoquant Curve. ongrun Cost Function In the longrun, both K and are variable. The isoquant curve describes the same output level with different combination of K and (see Figure ). The slope of an isoquant curve is MP MRTS = MPK. Similarly, the isocost curve is constructed by different (K, ) with the same cost (see Figure ). The isocost curve equation is: rk + w = const, therefore, it is linear, with a slope w. r Now we want to minimize the cost rk +w subject to an output level Q(K, ) = q. This minimum cost can be obtained when the isocost curve is tangent to the isoquant curve (see Figure ). Thus the slopes of these two curves are equal: MP w MRTS = =. MP K r Now consider an increase in wage (w). The slope of the isocost curve increases (see Figure ), and the firm use more capital and less labor. The firm s choice of input moves from A to B in the figure. The expansion path shows the minimum cost combinations of labor and capital at each level of output (see Figure 9). Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
6 K ongrun Cost Function Figure : Isocost Curve. 9 K 9 Figure : Minimize the Cost Subject to a Output evel. Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
7 ongrun Cost Function 9 K B A 9 Figure : The Change of Cost Minimized Situation. 9 Expansion Path K 9 Figure 9: Expansion Path. Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
8 ongrun Cost Function Example (Calculating the Cost.). Given the production function q = K. In the short run, q C SR (q; K) = rk + w, K where K is fixed. In the long run, according to the equation MP MP K w =, r we have K w =. r Then the expansion path is w K =. r Substituting this result into the production function, we obtain r = q ( ), w w K = q ( ). r Hence, the longrun cost function is: C R (q) = w + rk = q wr. Cite as: ChiaHui Chen, course materials for. Principles of Microeconomics, Fall. MIT
Production Functions
Short Run Production Function. Principles of Microeconomics, Fall ChiaHui Chen October, ecture Production Functions Outline. Chap : Short Run Production Function. Chap : ong Run Production Function. Chap
More informationChapter 5 The Production Process and Costs
Managerial Economics & Business Strategy Chapter 5 The Production Process and Costs McGrawHill/Irwin Copyright 2010 by the McGrawHill Companies, Inc. All rights reserved. Overview I. Production Analysis
More informationSHORTRUN PRODUCTION
TRUE OR FALSE STATEMENTS SHORTRUN PRODUCTION 1. According to the law of diminishing returns, additional units of the labour input increase the total output at a constantly slower rate. 2. In the shortrun
More informationThe Cost of Production
The Cost of Production 1. Opportunity Costs 2. Economic Costs versus Accounting Costs 3. All Sorts of Different Kinds of Costs 4. Cost in the Short Run 5. Cost in the Long Run 6. Cost Minimization 7. The
More informationMicroeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions.
Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions. Reference: Gregory Mankiw s Principles of Microeconomics, 2 nd edition, Chapter 13. LongRun
More informationNumber of Workers Number of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25
Intermediate Microeconomics Economics 435/735 Fall 0 Answers for Practice Problem Set, Chapters 68 Chapter 6. Suppose a chair manufacturer is producing in the short run (with its existing plant and euipment).
More informationMERSİN UNIVERSITY FACULTY OF ECONOMICS AND ADMINISTRATIVE SCİENCES DEPARTMENT OF ECONOMICS MICROECONOMICS MIDTERM EXAM DATE 18.11.
MERSİN UNIVERSITY FACULTY OF ECONOMICS AND ADMINISTRATIVE SCİENCES DEPARTMENT OF ECONOMICS MICROECONOMICS MIDTERM EXAM DATE 18.11.2011 TİIE 12:30 STUDENT NAME AND NUMBER MULTIPLE CHOICE. Choose the one
More informationLong Run Supply and the Analysis of Competitive Markets. 1 Long Run Competitive Equilibrium
Long Run Competitive Equilibrium. rinciples of Microeconomics, Fall 7 ChiaHui Chen October 9, 7 Lecture 6 Long Run Supply and the Analysis of Competitive Markets Outline. Chap 8: Long Run Equilibrium.
More informationProduction Functions and Cost of Production
1 Returns to Scale 1 14.01 Principles of Microeconomics, Fall 2007 ChiaHui Chen October, 2007 Lecture 12 Production Functions and Cost of Production Outline 1. Chap 6: Returns to Scale 2. Chap 6: Production
More informationChapter 7: The Costs of Production QUESTIONS FOR REVIEW
HW #7: Solutions QUESTIONS FOR REVIEW 8. Assume the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?
More informationTheory of the Firm. The Firm s Problem: Costs and Profits
Theory of the Firm The Firm s Problem: Costs and Profits Firm s Problem: Description We consider a firm producing a single good Q using two inputs: L (labour) and K (capital). The technology of the firm
More informationReview of Production and Cost Concepts
Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #3 Review of Production and Cost Concepts Thursday  September 23, 2004 OUTLINE OF TODAY S RECITATION 1.
More informationNAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008
NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1.
More information14.01SC Principles of Microeconomics, Fall 2011 Transcript Problem 43 Solution Video
14.01SC Principles of Microeconomics, Fall 2011 Transcript Problem 43 Solution Video The following content is provided under a Creative Commons license. Your support will help MIT OpenCourseWare continue
More informationAn increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.
1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.
More information19 : Theory of Production
19 : Theory of Production 1 Recap from last session Long Run Production Analysis Return to Scale Isoquants, Isocost Choice of input combination Expansion path Economic Region of Production Session Outline
More informationSubstitution and Income Effect, Individual and Market Demand, Consumer Surplus. 1 Substitution Effect, Income Effect, Giffen Goods
Substitution Effect, Income Effect, Giffen Goods 4.0 Principles of Microeconomics, Fall 007 ChiaHui Chen September 9, 007 Lecture 7 Substitution and Income Effect, Individual and Market Demand, Consumer
More informationProfit and Revenue Maximization
WSG7 7/7/03 4:36 PM Page 95 7 Profit and Revenue Maximization OVERVIEW The purpose of this chapter is to develop a general framework for finding optimal solutions to managerial decisionmaking problems.
More informationProduction Function in the LongRun. Business Economics Theory of the Firm II Production and Cost in the Long Run. Description of Technology
Business Economics Theory of the Firm II Production and Cost in the ong Run Two or more variable input factors Thomas & Maurice, Chapter 9 Herbert Stocker herbert.stocker@uibk.ac.at Institute of International
More informationLabor Demand. Labor Economics VSE Praha March 2009
Labor Demand Labor Economics VSE Praha March 2009 Labor Economics: Outline Labor Supply Labor Demand Equilibrium in Labor Market et cetera Labor Demand Model: Firms Firm s role in: Labor Market consumes
More informationPART A: For each worker, determine that worker's marginal product of labor.
ECON 3310 Homework #4  Solutions 1: Suppose the following indicates how many units of output y you can produce per hour with different levels of labor input (given your current factory capacity): PART
More informationTechnology, Production, and Costs
Chapter 10 Technology, Production, and Costs 10.1 Technology: An Economic Definition 10.1 LEARNING OBJECTIVE Learning Objective 1 Define technology and give examples of technological change. A firm s technology
More informationEcon 101: Principles of Microeconomics
Econ 101: Principles of Microeconomics Chapter 12  Behind the Supply Curve  Inputs and Costs Fall 2010 Herriges (ISU) Ch. 12 Behind the Supply Curve Fall 2010 1 / 30 Outline 1 The Production Function
More informationMicroeconomics and mathematics (with answers) 5 Cost, revenue and profit
Microeconomics and mathematics (with answers) 5 Cost, revenue and profit Remarks: = uantity Costs TC = Total cost (= AC * ) AC = Average cost (= TC ) MC = Marginal cost [= (TC)'] FC = Fixed cost VC = (Total)
More informationDeriving MRS from Utility Function, Budget Constraints, and Interior Solution of Optimization
Utilit Function, Deriving MRS. Principles of Microeconomics, Fall ChiaHui Chen September, Lecture Deriving MRS from Utilit Function, Budget Constraints, and Interior Solution of Optimization Outline.
More informationMICROECONOMICS AND POLICY ANALYSIS  U8213 Professor Rajeev H. Dehejia Class Notes  Spring 2001
MICROECONOMICS AND POLICY ANALYSIS  U8213 Professor Rajeev H. Dehejia Class Notes  Spring 2001 General Equilibrium and welfare with production Wednesday, January 24 th and Monday, January 29 th Reading:
More informationMassachusetts Institute of Technology Department of Economics. 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007
Page 1 of 8 Massachusetts Institute of Technology Department of Economics 14.01 Principles of Microeconomics Exam Tuesday, November 6th, 007 Last Name (Please print): First Name: MIT ID Number: Instructions.
More informationCHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY
CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of .0. It has a constant marginal cost of $0 per unit and sets a price to maximize
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.
Principles of Microeconomics, Quiz #5 Fall 2007 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) Perfect competition
More informationShortRun Production and Costs
ShortRun Production and Costs The purpose of this section is to discuss the underlying work of firms in the shortrun the production of goods and services. Why is understanding production important to
More information21 : Theory of Cost 1
21 : Theory of Cost 1 Recap from last Session Production cost Types of Cost: Accounting/Economic Analysis Cost Output Relationship Short run cost Analysis Session Outline The LongRun CostOutput Relations
More informationChapter 7 Production Costs
Chapter 7 Production s MULTIPLE CHOICE Exhibit 1 Production of pizza data Workers Pizzas 1 4 2 1 3 15 4 18 5 19 Exhibit 1 shows the change in the production of pizzas as more workers are hired. The marginal
More informationCHAPTER SEVEN THE THEORY AND ESTIMATION OF COST
CHAPTER SEVEN THE THEORY AND ESTIMATION OF COST The production decision has to be based not only on the capacity to produce (the production function) but also on the costs of production (the cost function).
More informationMATH MODULE 5. Total, Average, and Marginal Functions. 1. Discussion M51
MATH MODULE Total, Average, and Marginal Functions 1. Discussion A very important skill for economists is the ability to relate total, average, and marginal curves. Much of standard microeconomics involves
More informationEconomics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013
Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on
More informationLabour is a factor of production, and labour, like other factors, such as capital (machinery, etc) are demanded by firms for production purposes.
Labour Demand Labour is a factor of production, and labour, like other factors, such as capital (machinery, etc) are demanded by firms for production purposes. The quantity of labour demanded depends on
More informationEconomics 101 Spring 2011 Homework #4 Due Tuesday, March 29
Economics 101 Spring 2011 Homework #4 Due Tuesday, March 29 Directions: The homework will be collected in a box before the lecture. Staple your homework before handing it in. Please place your name, TA
More informationEconomics 10: Problem Set 3 (With Answers)
Economics 1: Problem Set 3 (With Answers) 1. Assume you own a bookstore that has the following cost and revenue information for last year:  gross revenue from sales $1,  cost of inventory 4,  wages
More information, to its new position, ATC 2
S171S184_Krugman2e_PS_Ch12.qxp 9/16/08 9:22 PM Page S171 Behind the Supply Curve: Inputs and Costs chapter: 12 1. Changes in the prices of key commodities can have a significant impact on a company s
More informationChapter 8: Theory of Cost
Chapter 8: Theory of Input s Classification Minimization Shifts in Curves Explicit and Implicit s Fixed and Variable s Profit Long Run Short Run Input Price Change New Technologies Positive Feedback Normal
More informationThe Revenue of a Competitive In perfect competition, average revenue equals the price of the good. Total revenue Average Revenue = = The Revenue of a
In this chapter, look for the answers to these questions: What is a perfectly competitive market? What is marginal revenue? How is it related to total and average revenue? How does a competitive firm determine
More informationChapter 12. The Costs of Produc4on
Chapter 12 The Costs of Produc4on Copyright 214 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education. What will you learn
More informationMassachusetts Institute of Technology Department of Economics. 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007
Page 1 of 18 Massachusetts Institute of Technology Department of Economics 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007 Last Name (Please print): First Name: MIT ID Number: Instructions.
More informationMonopoly and Monopsony
Multilant Firm. rinciples of Microeconomics, Fall ChiaHui Chen November, Lecture Monopoly and Monopsony Outline. Chap : Multilant Firm. Chap : Social Cost of Monopoly ower. Chap : rice Regulation. Chap
More informationDerivatives as Rates of Change
Derivatives as Rates of Change OneDimensional Motion An object moving in a straight line For an object moving in more complicated ways, consider the motion of the object in just one of the three dimensions
More informationThe Basics of Supply and Demand
1 Demand and Supply Curves 1 14.01 Principles of Microeconomics, Fall 2007 ChiaHui Chen September 7, 2007 Lecture 2 The Basics of Supply and Demand BUYERS = DEMAND MARKET EQUILIBRIUM SELLERS = SUPPLY
More informationCost Constraint/Isocost Line
Cost Constraint/Isocost ine COST CONSTRAINT C= w + rk (m = p 1 x 1 +p 2 x 2 ) w: wage rate (including fringe benefits, holidays, PRSI, etc) r: rental rate of capital Rearranging: K=C/r(w/r) COST CONSTRAINT
More informationchapter Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost
chapter 8 Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost We ve just seen how to derive a firm s total cost curve from its production function.
More informationa. What is the total revenue Joe can earn in a year? b. What are the explicit costs Joe incurs while producing ten boats?
Chapter 13 1. Joe runs a small boat factory. He can make ten boats per year and sell them for 25,000 each. It costs Joe 150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten
More informationProduction and Cost Analysis
Production and Cost Analysis The entire production process begins with the supply of factors of production or inputs used towards the production of a final good we all consume in the final good market.
More informationProfit Maximization. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University
Profit Maximization PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 The Nature and Behavior of Firms A firm An association of individuals Firms Who have organized themselves
More informationChapter 22 The Cost of Production Extra Multiple Choice Questions for Review
Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review 1. Implicit costs are: A) equal to total fixed costs. B) comprised entirely of variable costs. C) "payments" for selfemployed
More informationChapter 14: Firms in Competitive Markets. Total revenue = price per unit sold number of units sold = p q
Chapter 14: Firms in Competitive Markets Profit and Revenue The firm's goal is to maximize profit. Profit = total revenue  total cost (opportunity cost) Total revenue = price per unit sold number of units
More informationCosumnes River College Principles of Microeconomics Problem Set 6 Due Tuesday, March 24, 2015
Name: Solutions Cosumnes River College Principles of Microeconomics Problem Set 6 Due Tuesday, March 24, 2015 Spring 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets
More informationLongRun Average Cost. Econ 410: Micro Theory. LongRun Average Cost. LongRun Average Cost. Economies of Scale & Scope Minimizing Cost Mathematically
Slide 1 Slide 3 Econ 410: Micro Theory & Scope Minimizing Cost Mathematically Friday, November 9 th, 2007 Cost But, at some point, average costs for a firm will tend to increase. Why? Factory space and
More informationExternalities, Market Failure and Government
Efficient Wage Theory. rinciples of Microeconomics, Fall ChiaHui Chen December, Lecture Externalities, Market Failure and Government Outline. Chap : Efficient Wage Theory. Chap : Externalities. Chap :
More informationTable of Contents MICRO ECONOMICS
economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...
More informationor, put slightly differently, the profit maximizing condition is for marginal revenue to equal marginal cost:
Chapter 9 Lecture Notes 1 Economics 35: Intermediate Microeconomics Notes and Sample Questions Chapter 9: Profit Maximization Profit Maximization The basic assumption here is that firms are profit maximizing.
More informationThe Envelope Theorem 1
John Nachbar Washington University April 2, 2015 1 Introduction. The Envelope Theorem 1 The Envelope theorem is a corollary of the KarushKuhnTucker theorem (KKT) that characterizes changes in the value
More informationCosts. Accounting Cost{stresses \out of pocket" expenses. Depreciation costs are based on tax laws.
Costs Accounting Cost{stresses \out of pocket" expenses. Depreciation costs are based on tax laws. Economic Cost{based on opportunity cost (the next best use of resources). 1. A selfemployed entrepreneur's
More informationChapter 8. Competitive Firms and Markets
Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,
More informationProductioin OVERVIEW. WSG5 7/7/03 4:35 PM Page 63. Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.
WSG5 7/7/03 4:35 PM Page 63 5 Productioin OVERVIEW This chapter reviews the general problem of transforming productive resources in goods and services for sale in the market. A production function is the
More informationChapter 12: Cost Curves
Chapter 12: Cost Curves 12.1: Introduction In chapter 11 we found how to minimise the cost of producing any given level of output. This enables us to find the cheapest cost of producing any given level
More informationPrice Elasticity of Supply; Consumer Preferences
1 Price Elasticity of Supply 1 14.01 Principles of Microeconomics, Fall 2007 ChiaHui Chen September 12, 2007 Lecture 4 Price Elasticity of Supply; Consumer Preferences Outline 1. Chap 2: Elasticity 
More informationPrice Theory Lecture 4: Production & Cost
Price Theory Lecture 4: Production & Cost Now that we ve explained the demand side of the market, our goal is to develop a greater understanding of the supply side. Ultimately, we want to use a theory
More informationCost of Production : An Example
University of California, Berkeley Spring 008 ECON 00A Section 0, Cost of Production : An Example What you should get out of this example: Understand the technical derivation of optimal inputs in Cost
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MBA 640, Survey of Microeconomics, Quiz #4 Fall 2006 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the short run, A) there are no variable
More informationc. Given your answer in part (b), what do you anticipate will happen in this market in the longrun?
Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm
More informationPractice Multiple Choice Questions Answers are bolded. Explanations to come soon!!
Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!! For more, please visit: http://courses.missouristate.edu/reedolsen/courses/eco165/qeq.htm Market Equilibrium and Applications
More informationSample Midterm Solutions
Sample Midterm Solutions Instructions: Please answer both questions. You should show your working and calculations for each applicable problem. Correct answers without working will get you relatively few
More informationCost OVERVIEW. WSG6 7/7/03 4:36 PM Page 79. Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.
WSG6 7/7/03 4:36 PM Page 79 6 Cost OVERVIEW The previous chapter reviewed the theoretical implications of the technological process whereby factors of production are efficiently transformed into goods
More informationFirm and Industry Supply
Firm and Industry Supply M. Utku Ünver Micro Theory Boston College M. Utku Ünver Micro Theory (BC) Firm and Industry Supply 1 / 26 FIRM SUPPLY M. Utku Ünver Micro Theory (BC) Firm and Industry Supply 2
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Practice for Perfect Competition Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is a defining characteristic of a
More informationProblems on Perfect Competition & Monopoly
Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In longrun equilibrium, every firm in a perfectly
More informationLearning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to:
Learning Objectives After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Discuss three characteristics of perfectly competitive
More informationFixed Cost. Marginal Cost. Fixed Cost. Marginal Cost
1. Complete the following table (round each answer to the nearest whole number): Output Total Variable Fixed Marginal Average Avg. Var. Avg. Fixed 0 30 1 35 60 3 110 4 00 5 30 6 600 Output Total Variable
More informationEconomics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.
Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a
More informationManagerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect
More informationAP MICROECONOMICS 2015 SCORING GUIDELINES
AP MICROECONOMICS 2015 SCORING GUIDELINES Question 1 10 points (1+5+1+3) (a) 1 point: One point is earned for stating that the firm s price is equal to the market price because the firm is a price taker.
More informationTechnology and Economic Growth
Growth Accounting Formula Technology and Economic Growth A. %ΔY = %ΔA + (2/3) %ΔN + (1/3) %ΔK B. Ex. Suppose labor, capital, and technology each grow at 1% a year. %ΔY = 1 + (2/3) 1 + (1/3) 1 = 2 C. Growth
More informationChapter 6 Competitive Markets
Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a
More information8. Average product reaches a maximum when labor equals A) 100 B) 200 C) 300 D) 400
Ch. 6 1. The production function represents A) the quantity of inputs necessary to produce a given level of output. B) the various recipes for producing a given level of output. C) the minimum amounts
More informationMarket for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2
Factor Markets Problem 1 (APT 93, P2) Two goods, coffee and cream, are complements. Due to a natural disaster in Brazil that drastically reduces the supply of coffee in the world market the price of coffee
More informationA) In this situation, the production function exhibits both diminishing returns to labor and constant returns to scale. Explain why.
Problems for Unit 1, ECON 3357, Fall 2012, Darren Grant. Brief answers are provided below. The tutors await your visit to work on these problems, and I will discuss one or two in class before they are
More informationOverview. Managerial Economics & Business Strategy Baye Chapters 45 Edited by DF 10/12. Consumer Behavior
Managerial Economics & usiness Strategy aye hapters 45 Edited by DF 1/12 Overview onsumer ehavior ndifference urve nalysis onsumer Preference Ordering onstraints The udget onstraint hanges in ncome hanges
More informationQ = ak L + bk L. 2. The properties of a shortrun cubic production function ( Q = AL + BL )
Learning Objectives After reading Chapter 10 and working the problems for Chapter 10 in the textbook and in this Student Workbook, you should be able to: Specify and estimate a shortrun production function
More informationEconS 301 Review Session #8 Chapter 11: Monopoly and Monopsony
EconS 301 Review Session #8 Chapter 11: Monopoly and Monopsony 1. Which of the following describes a correct relation between price elasticity of demand and a monopolist s marginal revenue when inverse
More informationMidterm Review Questions
Midterm Review Questions July 29, 2013 Consumer Theory 1. Parvez, a pharmacology student has allocated $120 per month to spend on paperback novels (N is the number of novels) and used CDs (C is the numbers
More informationThe table below shows the prices of the only three commodities traded in Shire.
Economics 101 Fall 2012 Homework #4 Due 11/20/2012 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly).
More informationCHAPTER 4: PRODUCTION THEORY
CHAPTER 4: PRODUCTION THEORY Managers make production decisions in 2 different decision making time frames: Short run production decisions and long run production decisions. In short run decision making
More informationCOST THEORY. I What costs matter? A Opportunity Costs
COST THEORY Cost theory is related to production theory, they are often used together. However, the question is how much to produce, as opposed to which inputs to use. That is, assume that we use production
More informationCHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY
CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit.
More informationAPPLICATION 8.2 APPLICATION 8.3 Alumina? Hospitals Are Businesses Too 8.2 APPLICATION 8.4. APPLICATION 8.7 Experience Reduces Costs of Computer Chips
besa44438_ch08.qxd 10/12/04 4:49 PM Page 259 8 COST CURVES C H A P T E R 8.1 L ONGRUN COST CURVES APPLICATION 8.1 The Long Run Cost of Trucking APPLICATION 8.2 APPLICATION 8.3 Alumina? APPLICATION 8.4
More informationPreTest Chapter 20 ed17
PreTest Chapter 20 ed17 Multiple Choice Questions 1. In the above diagram it is assumed that: A. some costs are fixed and other costs are variable. B. all costs are variable. C. the law of diminishing
More informationTest 2 8 November 2006
Eco 301 Name Test 2 8 November 2006 100 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. 1. A fastfood restaurant currently
More informationN. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION
N. Gregory Mankiw Principles of Economics Chapter 13. THE COSTS OF PRODUCTION Solutions to Problems and Applications 1. a. opportunity cost; b. average total cost; c. fixed cost; d. variable cost; e. total
More informationMarket Supply in the Short Run
Equilibrium in Perfectly Competitive Markets (Assume for simplicity that all firms have access to the same technology and input markets, so they all have the same cost curves.) Market Supply in the Short
More informationProt Maximization and Cost Minimization
Simon Fraser University Prof. Karaivanov Department of Economics Econ 0 COST MINIMIZATION Prot Maximization and Cost Minimization Remember that the rm's problem is maximizing prots by choosing the optimal
More informationElasticities of Demand
rice Elasticity of Demand 4.0 rinciples of Microeconomics, Fall 007 ChiaHui Chen September 0, 007 Lecture 3 Elasticities of Demand Elasticity. Elasticity measures how one variable responds to a change
More informationECON 3560/5040 Week 2. 1. What Determines the Total Production of Goods and Services
ECON 3560/5040 Week 2 NATIONAL INCOME 1. What Determines the Total Production of Goods and Services  Factors of production: the inputs used to produce goods and services (1) Capital (K) (2) Labor (L)
More information