Chapter 8: Theory of Cost
|
|
- Nathan Hicks
- 7 years ago
- Views:
Transcription
1 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 Pure Isocost Isoquant Isocost Isoquant Least- Combination Least- Combination Long-Run Total Total Long-Run Marginal Long-Run Average Total Variable Total Fixed Average Total Returns to Scale Marginal Average Variable Average Fixed Increasing Returns Constant Returns Decreasing Returns Stages of Production Outline and Conceptual Inquiries Application: Stakeholder versus Shareholder and Management Ethics How to Classify s and Profits Explicit and Implicit s What is the cost of your time in completing a college degree? Fixed and Variable s Do you pay both a fixed and variable rate for your monthly cell-phone service? Profits Determining the -Minimizing Input Choice Long-Run s How do you produce a low-cost pizza? Application: Labor Unionization and of Production Is bigger better? Application: Economies of Scale in Electricity Production Is an additional driver s cost of road congestion the same as all the other current drives? s
2 Is marginal cost just some adjustment to average cost? Why will average costs rise with increases in output? Application: Shapes of the Average Variable Curves How are Short- and Long-run Curves Related? Shifting the Curves Input Price Change How will marginal cost shift with a change in fixed cost? New Technologies Summary 1. Under the assumptions that prices are fixed, profits are nonstochastic, and firm managers can be controlled by owners, the objective of a profit-maximizing firm is consistent with maximizing the utility of the firms owners. 2. Total cost may be divided into explicit and implicit costs. Explicit costs are costs of employing inputs not owned by the firm; implicit costs are costs charged to inputs owned by the firm. 3. Total cost may also be divided into fixed and variable costs. Fixed costs are costs associated with the fixed inputs; variable costs are costs that vary with output and are associated with variable inputs. 4. Normal profit is the minimum total return to the inputs necessary to keep a firm in some production activity. Pure profit is total revenue minus total cost. If pure profit is zero, the firm is earning a normal profit. A negative level of pure profit indicates the firm is operating at loss. 5. An isocost curve represents a locus of points where the total cost is the same for alternative input combinations. 6. The least-cost combination of inputs for a given level of output is determined where the marginal rate of technological substitution is equal to the economic rate of substitution. At this least-cost combination, the price per marginal product for each input is equal to the firm s marginal cost. 7. Increasing (decreasing) returns to scale results when total cost increases proportionally less (more) than an increase in output. Constant returns to scale corresponds to total cost increasing proportionally with output. 8. Short-run total cost is equal to short-run total variable plus total fixed costs. Dividing through by output results in short-run average total cost equaling short-run average variable plus average fixed costs. Short-run marginal cost is the slope of both the short-run total and total variable cost curves.
3 9. The Law of Diminishing Marginal Returns results in U-shaped short-run average total, average variable and marginal cost curves. Given diminishing marginal returns, Stage II of production corresponds to where short-run marginal cost is rising and above short-run average variable cost. A firm s profit-maximizing level of output will be somewhere within Stage II of production. 10. In the long run, an increase in the price of an input will tilt the long-run total cost curve upward. Similarly, an increase in the price of a variable input will tilt the short-run total variable and total cost curves upward. The tilt in the totals will shift the average and marginal curves upward. Only the curves solely associated with the fixed inputs (total fixed cost and average fixed cost curves) will not shift. 11. An increase in fixed costs shifts the short-run total cost curve upward. The short-run average total cost will then also shift upward; however, the short-run total variable cost, average variable cost, and marginal cost curves do not shift. Key Concepts allocative efficiency average fixed cost (AFC) economic profit entrepreneurial costs expenditure costs explicit costs implicit costs imputed costs isocost curves long-run average cost (LAC) long-run marginal cost (LMC) long-run total cost (LTC) necessary profit nonexpenditure costs normal profit opportunity-cost profit ordinary profit positive feedback pure profit short-run average total cost (SATC) short-run average variable cost (SAVC) short-run marginal cost (SMC) short-run total cost (STC) short-run total variable cost (STVC) total cost (TC) total fixed cost (TFC) Key Equations TC = wl + vk Isocost equation determined by equating the price per marginal product to marginal cost. λ * = w/mp L = v/mp K = LMC The least-cost combination of inputs is Marginal cost is equal to average cost plus an adjustment factor.
4 TEST YOURSELF Multiple Choice 1. The costs of employing inputs not owned by the firm are called costs. a. Variable b. Short-run c. Explicit d. Implicit. 2. Kala owns her own business. Her revenues for the year were $200,000. Her explicit costs were $150,000. To start her business, Kala gave up her job managing a store with a salary of $40,000. She also used $50,000 from her savings account that was earning 3 percent interest. Which of the following statements is correct? a. Kala is earning a negative pure profit b. Kala s implicit costs are $90,000 c. Kala is just breaking even and earning a normal profit d. Kala is earning a positive pure profit. 3. The slope of the isocost line with capital on the vertical axis is a. TC/v b. w/v c. v/w d. (v/w)(k/l). 4. When the price of labor rises, the isocost line with labor on the horizontal axis a. Tilts output b. Shifts out c. Shifts inward d. Tilts inward. 5. Suppose the total cost of producing 12 units of output is $120. The price of labor is $8 and the price of capital is $12. The equation for the isocost line is a. 12q 120 = 12L + 8K b. 120 = 12L + 8K c. 120 = 20(L + K) d. 30 = 2L + 3K.
5 6. The least-cost combination of inputs for capital and labor occurs where a. b. c. d. 7. The additional cost associated with an additional increase in output when all inputs are variable is known as cost. a. Long-run marginal b. Long-run total c. Short-run average total d. Short-run marginal. 8. Suppose long-run average cost falls as output rises. This implies the firm is experiencing a. Decreasing returns to scale b. Diminishing returns to labor c. Increasing returns to scale d. Diseconomies of scale. 9. At a production level of 100 units, long-run average cost is $40 and long-run marginal cost is $50. If another unit is produced, long-run a. Marginal cost and long-run average cost will both fall b. Average cost will rise c. Average cost will be unaffected d. None of the above. 10. In the short-run, a. All costs are explicit b. Some costs are fixed c. All costs are variable d. Output is constant. 11. When short-run average cost is equal to short-run marginal cost, short-run a. Marginal cost is maximized b. Average cost is maximized c. Marginal cost is minimized d. Average cost is minimized.
6 12. Stage I can be defined as the stage of production where short-run a. Marginal cost is rising b. Average variable cost is declining c. Marginal cost is declining d. Average variable cost is rising. 13. Which of the following is true? a. Short-run average variable cost can never be less than short-run average total cost b. Short-run average variable cost and short-run marginal cost are equal when short-run marginal cost is at its minimum c. Short-run total cost can never be less than long-run total cost d. Long-run marginal cost is minimized when it is equal to short-run marginal cost. 14. Which of the following shift up when the price of a fixed input rises? I. Short-run average variable cost II. Short-run average total cost III. Short-run marginal cost a. I b. II c. II and III d. I, II and III. 15. Suppose a firm discovers a new technology that alters its production function. This will result in a(n) a. Outward shift of the firm s isoquants b. Upward shift of the firm s short-run cost curves c. Drop in the firm s short-run total cost d. Change in the slope of the firm s isocost line.
7 Short Answer 1. Explain the difference between explicit and implicit costs. How are implicit costs related to normal profit? Explain. 2. Explain why the slope of the isocost line is called the economic rate of substitution. 3. With total cost is $200, the price of labor is $5 and the price of capital is $10, state the firm s isocost equation and graph it. 4. Kelly produces barbecues. The marginal product of labor is 14 and the marginal product of capital is 20. If the price of labor is $7 and the price of capital is $12, is the firm producing at minimum cost? Explain. If not, how should the firm alter its input use to lower its costs? 5. What is an expansion path? Draw a graph illustrating how a firm s expansion path can be derived. 6. Explain how the shape of the firm s long-run average cost curve is related to returns to scale. 7. True, false, or uncertain? Short-run average variable cost and short-run marginal cost will be equal when short-run average total cost is at its minimum. Explain. 8. Describe the three stages of production in terms of short-run cost. Explain how diminishing marginal returns determines the shapes of the short-run cost curves. 9. Explain why short-run total cost can never be less than long-run total cost. 10. Graph the isoquants for two different levels of output employing capital and labor. Illustrate the expansion path between these outputs. If the price of labor falls, illustrate the shift in the expansion path.
8 Problems 1. Given the following data, find the firm s pure profit and normal profit: Fixed Explicit 100,000 Implicit 50,000 Variable Explicit 500,000 Implicit 150,000 Revenue 950, Suppose a firm s production function is q = 20K 2/5 L 3/5. If w = 12 and v = 8, find the least-cost combination of inputs to produce 40 units of output. 3. Suppose a firm s production function is q = 2K + 6L. If w = 6 and v = 10, find the least-cost combination of inputs to produce 60 units of output. 4. Suppose a firm s production function is q = 5KL. If w = 8 and v = 10, derive the equation for long-run cost (LTC). What is long-run marginal cost (LMC)? 5. Refer to Problem 4. Derive the firm s short-run total, average total and marginal cost curves assuming that capital is fixed. 6. Suppose a firm s production function is q = 2K 1/2 L 1/2. If w = 4 and v = 6, find the firm s expansion path. If w increases to 6, find the new expansion path. 7. Suppose a firm s short-run total cost curve is STC = 15q 2 + 8q Find the firm s a. Short-run total variable cost (STVC) b. Total fixed cost (TFC) c. Short-run average total cost (SATC) d. Short-run average variable cost (SAVC) e. Average fixed cost (AFC) f. Short-run marginal cost (SMC) g. Level of output where short-run average total cost is minimized. h. Level of output where short-run average variable cost is minimized. 8. Suppose the firm in Problem 7 experiences an increase in fixed costs of $15 to $60 from $45. Show what happens to the firm s short-run average total cost, short-run average variable cost and short-run marginal cost
Chapter 9: Perfect Competition
Chapter 9: Perfect Competition Perfect Competition Law of One Price Short-Run Equilibrium Long-Run Equilibrium Maximize Profit Market Equilibrium Constant- Cost Industry Increasing- Cost Industry Decreasing-
More informationPre-Test Chapter 20 ed17
Pre-Test 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 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 self-employed
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Firms that survive in the long run are usually those that A) remain small. B) strive for the largest
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 Long-Run Cost-Output Relations
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 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 informationD) Marginal revenue is the rate at which total revenue changes with respect to changes in output.
Ch. 9 1. Which of the following is not an assumption of a perfectly competitive market? A) Fragmented industry B) Differentiated product C) Perfect information D) Equal access to resources 2. Which of
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 informationChapter 5 The Production Process and Costs
Managerial Economics & Business Strategy Chapter 5 The Production Process and Costs McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Production Analysis
More informationSHORT-RUN PRODUCTION
TRUE OR FALSE STATEMENTS SHORT-RUN 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 short-run
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 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 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 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 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 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 informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chapter 11 Perfect Competition - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with A) a
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 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 informationProduction Function in the Long-Run. 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 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 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 informationCHAPTER 8 COSTS OF PRODUCTION
CHAPTER 8 COSTS OF PRODUCTION Chapter in a Nutshell This chapter gives an in-depth look at the costs of production for firms, both in the short run and in the long run. Although production techniques may
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 decision-making problems.
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 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 informationChapter. Perfect Competition CHAPTER IN PERSPECTIVE
Perfect Competition Chapter 10 CHAPTER IN PERSPECTIVE In Chapter 10 we study perfect competition, the market that arises when the demand for a product is large relative to the output of a single producer.
More information11 PERFECT COMPETITION. Chapter. Competition
Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat
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 informationECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS
ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 9 Chapter 6 WRITE [4] Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his
More informationProblem Set #5-Key. Economics 305-Intermediate Microeconomic Theory
Problem Set #5-Key Sonoma State University Economics 305-Intermediate Microeconomic Theory Dr Cuellar (1) Suppose that you are paying your for your own education and that your college tuition is $200 per
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 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 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 informationChapter 04 Firm Production, Cost, and Revenue
Chapter 04 Firm Production, Cost, and Revenue Multiple Choice Questions 1. A key assumption about the way firms behave is that they a. Minimize costs B. Maximize profit c. Maximize market share d. Maximize
More information14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen October 15, 2007. Lecture 13. Cost Function
Short-Run Cost Function. Principles of Microeconomics, Fall Chia-Hui Chen October, ecture Cost Functions Outline. Chap : Short-Run Cost Function. Chap : ong-run Cost Function Cost Function et w be 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. Long-Run
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 informationPractice Questions Week 6 Day 1
Practice Questions Week 6 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Economists assume that the goal of the firm is to a. maximize total revenue
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 informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Multiple choice review questions for Midterm 2 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A consumption point inside the budget line A) is
More informationEcon 202 Exam 3 Practice Problems
Econ 202 Exam 3 Practice Problems Principles of Microeconomics Dr. Phillip Miller Multiple Choice Identify the choice that best completes the statement or answers the question. Chapter 13 Production and
More informationA. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.
1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change
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 informationPrinciples of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9
Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #2 must be completed within the allocated time (i.e., between
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 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 informationECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS
ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of July 14 Chapter 11 WRITE: [2] Complete the following labour demand table for a firm that is hiring labour competitively and selling its
More informationCOST & BREAKEVEN ANALYSIS
COST & BREAKEVEN ANALYSIS http://www.tutorialspoint.com/managerial_economics/cost_and_breakeven_analysis.htm Copyright tutorialspoint.com In managerial economics another area which is of great importance
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 informationPractice Questions Week 8 Day 1
Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants
More informationPre-Test Chapter 25 ed17
Pre-Test Chapter 25 ed17 Multiple Choice Questions 1. Refer to the above graph. An increase in the quantity of labor demanded (as distinct from an increase in demand) is shown by the: A. shift from labor
More informationLong-Run Average Cost. Econ 410: Micro Theory. Long-Run Average Cost. Long-Run 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 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 informationAP Microeconomics Review
AP Microeconomics Review 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return
More informationExtra Problems #3. ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma. Notice:
ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma Extra Problems #3 Notice: (1) There are 25 multiple-choice problems covering Chapter 6, 9, 10, 11. These problems are not homework and
More informationProfit Maximization. 2. product homogeneity
Perfectly Competitive Markets It is essentially a market in which there is enough competition that it doesn t make sense to identify your rivals. There are so many competitors that you cannot single out
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 informationThe Cobb-Douglas Production Function
171 10 The Cobb-Douglas Production Function This chapter describes in detail the most famous of all production functions used to represent production processes both in and out of agriculture. First used
More informationQ = ak L + bk L. 2. The properties of a short-run 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 short-run production function
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 informationWhere are we? To do today: finish the derivation of the demand curve using indifference curves. Go on then to chapter Production and Cost
Where are we? To do today: finish the derivation of the demand curve using indifference curves Go on then to chapter Production and Cost Utility and indifference curves The point is to find where on the
More informationLecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization
Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization 2.1. Introduction Suppose that an economic relationship can be described by a real-valued
More informationUnit 2.3 - Theory of the Firm Unit Overview
Unit 2.3.1 - Introduction to Market Structures and Cost Theory Intro to Market Structures Pure competition Monopolistic competition Oligopoly Monopoly Cost theory Types of costs: fixed costs, variable
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 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 informationChapter 12. The Costs of Produc4on
Chapter 12 The Costs of Produc4on Copyright 214 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. What will you learn
More informationPre-Test Chapter 21 ed17
Pre-Test Chapter 21 ed17 Multiple Choice Questions 1. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exodus
More informationchapter Perfect Competition and the >> Supply Curve Section 3: The Industry Supply Curve
chapter 9 The industry supply curve shows the relationship between the price of a good and the total output of the industry as a whole. Perfect Competition and the >> Supply Curve Section 3: The Industry
More informationOVERVIEW. 5. The marginal cost is hook shaped. The shape is due to the law of diminishing returns.
9 COST OVERVIEW 1. Total fixed cost is the cost which does not vary with output. Total variable cost changes as output changes. Total cost is the sum of total fixed cost and total variable cost. 2. Explicit
More informationThe Central Idea CHAPTER 1 CHAPTER OVERVIEW CHAPTER REVIEW
CHAPTER 1 The Central Idea CHAPTER OVERVIEW Economic interactions involve scarcity and choice. Time and income are limited, and people choose among alternatives every day. In this chapter, we study the
More informationEXAM TWO REVIEW: A. Explicit Cost vs. Implicit Cost and Accounting Costs vs. Economic Costs:
EXAM TWO REVIEW: A. Explicit Cost vs. Implicit Cost and Accounting Costs vs. Economic Costs: Economic Cost: the monetary value of all inputs used in a particular activity or enterprise over a given period.
More informationCHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition
CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates
More informationEmployment and Pricing of Inputs
Employment and Pricing of Inputs Previously we studied the factors that determine the output and price of goods. In chapters 16 and 17, we will focus on the factors that determine the employment level
More informationc. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?
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 informationAP Microeconomics Chapter 12 Outline
I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.
More informationAnswers to Text Questions and Problems. Chapter 22. Answers to Review Questions
Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services
More informationCE2451 Engineering Economics & Cost Analysis. Objectives of this course
CE2451 Engineering Economics & Cost Analysis Dr. M. Selvakumar Associate Professor Department of Civil Engineering Sri Venkateswara College of Engineering Objectives of this course The main objective of
More informationManagerial Economics Prof. Trupti Mishra S.J.M. School of Management Indian Institute of Technology, Bombay. Lecture - 13 Consumer Behaviour (Contd )
(Refer Slide Time: 00:28) Managerial Economics Prof. Trupti Mishra S.J.M. School of Management Indian Institute of Technology, Bombay Lecture - 13 Consumer Behaviour (Contd ) We will continue our discussion
More informationChapter 6 MULTIPLE-CHOICE QUESTIONS
Chapter 6 MULTIPLE-CHOICE QUETION 1. Which one of the following is generally considered a characteristic of a perfectly competitive labor market? a. A few workers of varying skills and capabilities b.
More informationAssignment #3. ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma. Notice:
ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma Assignment #3 Notice: (1) There are 25 multiple-choice problems and 2 analytic (short-answer) problems. This assignment is due on March
More informationN. Gregory Mankiw Principles of Economics. Chapter 14. FIRMS IN COMPETITIVE MARKETS
N. Gregory Mankiw Principles of Economics Chapter 14. FIRMS IN COMPETITIVE MARKETS Solutions to Problems and Applications 1. A competitive market is one in which: (1) there are many buyers and many sellers
More informationECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS
ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot
More informationAgenda. Productivity, Output, and Employment, Part 1. The Production Function. The Production Function. The Production Function. The Demand for Labor
Agenda Productivity, Output, and Employment, Part 1 3-1 3-2 A production function shows how businesses transform factors of production into output of goods and services through the applications of technology.
More informationUse the following to answer question 9: Exhibit: Keynesian Cross
1. Leading economic indicators are: A) the most popular economic statistics. B) data that are used to construct the consumer price index and the unemployment rate. C) variables that tend to fluctuate in
More informationChapter 12 Production and Cost
Chapter 12 Production and Cost 12.1 Economic Cost and Profit 1) The primary goal of a business firm is to A) promote fairness. B) make a quality product. C) promote workforce job satisfaction. D) maximize
More informationChapter 9. The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis. 2008 Pearson Addison-Wesley. All rights reserved
Chapter 9 The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Chapter Outline The FE Line: Equilibrium in the Labor Market The IS Curve: Equilibrium in the Goods Market The LM Curve:
More informationCHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY
CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How
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 informationBADM 527, Fall 2013. Midterm Exam 2. Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME
BADM 527, Fall 2013 Name: Midterm Exam 2 November 7, 2013 Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME 1. According to classical theory, national income (Real
More informationEcon 101, section 3, F06 Schroeter Exam #4, Red. Choose the single best answer for each question.
Econ 101, section 3, F06 Schroeter Exam #4, Red Choose the single best answer for each question. 1. Profit is defined as a. net revenue minus depreciation. *. total revenue minus total cost. c. average
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that
More informationFigure 4-1 Price Quantity Quantity Per Pair Demanded Supplied $ 2 18 3 $ 4 14 4 $ 6 10 5 $ 8 6 6 $10 2 8
Econ 101 Summer 2005 In-class Assignment 2 & HW3 MULTIPLE CHOICE 1. A government-imposed price ceiling set below the market's equilibrium price for a good will produce an excess supply of the good. a.
More informationMarket Structure: Perfect Competition and Monopoly
WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit
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 informationEconomics 100 Exam 2
Name: 1. During the long run: Economics 100 Exam 2 A. Output is limited because of the law of diminishing returns B. The scale of operations cannot be changed C. The firm must decide how to use the current
More informationFinal Exam 15 December 2006
Eco 301 Name Final Exam 15 December 2006 120 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. Part 1 (10 points each) 1. As
More informationCHAPTER 3 CONSUMER BEHAVIOR
CHAPTER 3 CONSUMER BEHAVIOR EXERCISES 2. Draw the indifference curves for the following individuals preferences for two goods: hamburgers and beer. a. Al likes beer but hates hamburgers. He always prefers
More informationMicroeconomics Instructor Miller Practice Problems Labor Market
Microeconomics Instructor Miller Practice Problems Labor Market 1. What is a factor market? A) It is a market where financial instruments are traded. B) It is a market where stocks and bonds are traded.
More information