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ECON 1110 Lecture Notes - Lecture 8: Production Function, Factors Of Production, Marginal Product

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School
Cornell University
Department
Economics
Course
ECON 1110
Professor
Stephanie Thomas

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Document Summary

Lecture #8 the production process and behavior of firms. Firm"s main objective is to maximize profit, they don"t exist for any. Short run vs long run: short run. Firm is operating under a fixed scale (fixed factor) of production. Firms can neither enter or exit an industry: long run. Firm is not operating under a fixed scale (fixed factor) of. New firms can enter, and existing firms can exit, the production industry. More fluid and flexible than short run. Need to know market price of output. Need to know prices of inputs. Production techniques and input prices determine costs. Optimal method of production production method that minimizes cost for a given level of output: price of output determines total revenue total profit, production techniques and input prices determines lowest total cost and optimal method of production total profit graph. Production function: labor-intensive and capital-intensive technology, numerical or mathematical expression of a relationship between inputs and outputs.

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Related Questions

17. (From Sample Test) A perfectly competitive industry is in short run equilibrium with "n" identical firms and each firm is initially making normal profits. Under these circumstances, which one of the following statements is correct in the short run production period? With an increase in industry demand, each firm would make economic profits and would produce a larger output * With an increase in industry demand, each firm would make economic profits and new firms would enter the industry c) With an increase in fixed costs, each firm would make economic losses and some existing firms would leave the industry With a decrease in industry demand, each firm would make economic losses and would produce a higher output With a decrease in variable costs, each firm would make economic profits and would produce a lower output. d)

Match the following.

constant-cost industry A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker.
increasing-cost industry The demand facing a price-taking firm.
long-run equilibrium A firm produces zero output but must still pay its fixed costs.
marginal revenue product Price below which a firm shuts down in the short run.
perfect competition All firms produce where price equals long-run marginal cost, and economic profits are zero.
perfectly elastic demand Industry in which input prices rise as all firms in the industry expand output.
shut down Industry in which input prices remain constant as all firms in the industry expand output.
the shut-down price The additional revenue earned by hiring one more unit of a variable input.

 

Your firm is one of 100 identical firms operating in the short-run in a perfectly competitive market. Your total cost function (short-run and long-run) is C = 500 + 20 q + q2, and your marginal cost function is MC = 20 + 2q. The (short-run and long-run) market demand curve is given by Q = 4,500 - 5P.

a. Find the supply curve for your firm. Then, find the short-run market supply curve. Show work.

b. Find equilibrium price, P*, and quantity, Q*, in the market in the short-run. Show work.

c. Find your firm's total revenue, total cost, and profit in the short-run. Show work.

d. Find the minimum efficient scale (MES) for your firm. Show work. Find the long-run equilibrium price in the market after entry or exit has occurred. Show work.