ECON-1006EL Lecture Notes - Lecture 11: Average Cost, Average Variable Cost, Diminishing Returns

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skygerbil364

30 Nov 2017

School

Laurentian

Department

Economics / Science Èconomique

Course

ECON-1006EL

Professor

A.Faroque

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Document Summary

Microeco(cid:374)o(cid:373)ics notes for u(cid:374)it 11: the relationship between inputs and output is a producer s production function. In the short run, the quantity of a fixed input cannot be varied but the quantity of a variable input can. In the long run, the quantities of all inputs can be varied. For a given amount of a fixed input, the total product curve shows how the quantity of output changes as the quantity of the variable input changes, holding the production technology fixed. This is also the point at which the marginal cost curve crosses the average total cost curve from below. Due to gains from specialization, the marginal cost curve may slope downward initially before sloping upward, giving it a (cid:498)swoosh(cid:499) shape: in the long run, producer can change its fixed input and its level of fixed cost. By accepting higher fixed cost, a firm can lower its variable cost for any given output level, and vice versa.

Related Questions

The marginal product curve of input Y shows:

a. how the quantity of output produced changes for each amount of input Y, whether or not all other inputs are held constant.

b. how the quantity of output produced changes for each amount of input Y, holding all other inputs constant.

c. how the average quantity of output produced varies with input Y, whether or not all other inputs are held constant.

d. how the average quantity of output produced varies with input Y, holding all other inputs constant.

beigemouse213

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

The law of diminishing marginal returns states

A) that at some point adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline.

B) that at some point adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.

C) that in the presence of a fixed factor, at some point average product of labor starts to fall as more and more variable inputs are added.

D) average total costs of production initially fall and after some point starts to rise at a decreasing rate as output increases.

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ECON-1006EL Lecture Notes - Lecture 11: Average Cost, Average Variable Cost, Diminishing Returns

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