ECON-200 Lecture Notes - Lecture 14: Fixed Cost, Marginal Cost, Variable Cost

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azureprairie-dog22

18 Sep 2020

School

Diablo Valley College

Department

Economics

Course

ECON-200

Professor

Sorce

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Document Summary

Increasing returns to scale a production process in which a proportional increase in every input results in a more than proportional increase in the output. Constant returns to scale a production process in which a proportional increase in every input results in an equal proportional increase in the output. Decreasing returns to scale a production process in which a proportional increase in every input results in a less than proportional increase in the output. This is an illustration of returns to scale. With constant returns to scale (crs), the isoquants are spaced equally apart. With increasing returns to scale (irs), the isoquants get closer together. With decreasing returns to scale (drs), the isoquants move away from each other. In any production system, as the quantity (output) increases, the marginal cost or unit cost decreases up to a point. Ideally, the firm should try to operate at the point where the marginal cost is the lowest.

Related Questions

Indicate which one of the following statements is true.

Select one:

a. When the law of diminishing returns takes effect, a firm's average product will start to decrease.

b. Stage I of the production process ends at the point where the law of diminshing returns occurs.

c. Decreasing returns to scale occurs when a firm's increase in all inputs results in a proportionately lower increase in output.

d. Average product (AP) can never be lower than the marginal product (MP).

constant costs

increasing returns to scale

constant returns to scale

isocost curve

decreasing returns to scale

isoquant

diseconomies of scale

long-run average cost

economies of scale

long-run marginal cost

economies of scope

marginal rate of technical substitution

expansion path

short-run expansion path

___A curve that displays all the various combinations of inputs that will produce a given amount of output.

___The rate at which one input is substituted for another along an isoquant.

___Line that shows all the possible combinations of inputs that can be purchased for a given total cost.

___A curve showing all of the cost-minimizing levels of input usage for various levels of output.

___When the usage of all inputs is increased by an equal proportionate amount, output ___increases by exactly the same proportion.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a larger proportionate amount.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a smaller proportionate amount.

___Cost per unit in the long run.

___The change in long-run total cost per unit change in output.

___When long-run average cost falls as output increases.

___When long-run average cost increases with increases in output.

___Long-run average and marginal costs are equal for all levels of output.

___The situation in which the joint cost of producing two goods is less than the sum of the separate costs of producing the two goods.

___Horizontal line showing the cost-minimizing input combinations for various output levels when capital is fixed in the short run.

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6. A firm has a production function such that y = KL + 2L. The marginal product of K is L, and marginal product of L is K+2.

(a) Find the conditional input demand functions for K and L.

(b) Find the cost function, given that the price per unit of K is r and the price per unit of L is w. Just to be clear, you need an expression showing the cost for any given level of output y expressed in terms of w, r and y.

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ECON-200 Lecture Notes - Lecture 14: Fixed Cost, Marginal Cost, Variable Cost

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