ECON10004 Lecture Notes - Lecture 10: Opportunity Cost, Variable Cost, Fixed Cost

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orchidgnu53

27 Jul 2018

School

University of Melbourne

Department

Economics

Course

ECON10004

Professor

Nisvan Erkal

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Document Summary

Production: use "inputs" to produe "output" that will be supplied to buyers. Quantity sold x price per unit (units of input 1 x cost per unit of input 1) + (units of input 2 x cost per unit of input 2) Take into account the opportunity cost of all resources used in production. Want to be a supplier, or start as a supplier. Do not want to be a supplier, or would cease being a supplier. Note: economies of scale average cost of production reduces with each product produced. Production method the input a firm uses and the process by which those inputs are transformed into output. Short run time period over which the level of at least one input can"t be varied. Long run time period over which all inputs can be varied. The short run: describing a firm"s production and costs.

Related Questions

A price taking firm chooses its inputs to maximize short-run profits. Its Cobb-Douglass production function has the following form: q(L, K) = L ^(1/2)K^(1/3) . The output price is 1,000 per unit and the cost of each unit of input is 10. In the short-run, capital is fixed at 27 units.

(a) Set up the profit function in terms of labor only.

(b) Find the optimal choice of labor, L* .

goldwildebeest627

A price taking firm chooses its inputs to maximize short-run profits. Its Cobb-Douglass production function has the following form: q(L, K) = L^(1/2) K ^(1/3) . The output price is 1,000 per unit and the cost of each unit of input is 10. In the short-run, capital is fixed at 27 units.

(a) Set up the profit function in terms of labor only.

(b) Find the optimal choice of labor, L â .

Another price taking firm chooses its inputs to maximize long-run profits. Labor and capital are substitutes in production and both exhibit decreasing returns to scale, q(L, K) = L^(1/2) + K^(1/2) . The output price is 100 and the price of each of the inputs is 10.

(a) Set up the firmâs profit function and provide the two conditions for profit maximization.

(b) Find the profit maximizing levels of capital and labor.

rosearmadillo753

Assume that for a perfectly competitive firm marginal revenue equals rising marginal cost at 100 units of output. At this output level, the firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $10 per unit, the firm should produce

Select one:

a. zero units of output.

b. less than 100 units of output.

c. 100 units of output.

d. more than 100 units of output.

e. Cannot be determined from the information given.

When the marginal-cost curve lies below the marginal-revenue curve

Select one:

a. the firm cannot improve its profit since revenue is already greater than cost.

b. marginal revenue is greater than marginal cost, and the firm should therefore increase production to increase profits.

c. marginal revenue is greater than marginal cost, and the firm should therefore decrease production to increase profits.

d. marginal revenue is less than marginal cost, and the firm should therefore decrease production to increase profits.

e. it is not possible for this firm to increase profits since it is failing to operate at an efficient point.

ECON10004 Lecture Notes - Lecture 10: Opportunity Cost, Variable Cost, Fixed Cost

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