ECON 208 Lecture Notes - Root Mean Square, Marginal Product, Diminishing Returns

64 views3 pages

cerisecattle883

19 Nov 2012

School

McGill University

Department

Economics (Arts)

Course

ECON 208

Professor

Mayssun El- Attar Vilalta

For unlimited access to Class Notes, a Class+ subscription is required.

selin.aksezgin and 39983 others unlocked

ECON 208 Full Course Notes

Verified Note

27 documents

Document Summary

Numerous ways to produce any given output. Rms in the long-run must choose the type/amount of plant/equipment/labor force. Producers aim to be technically ef cient (inputs are combined to maximize output) Technical ef ciency isn"t enough for pro t maximization. The rm must choose from the many technically ef cient options and pick the one that produces a given level of output at the lowest cost. Choices about how much capital and labor to use are long-run choices because all factors are assumed to be variable. If its possible to substitute one factor for another to keep output constant/reduce total cost the rm is. The rm should substitute one factor for another factor as long as the marginal product of one factor. I. e. if more $ spent on labor produces more output than more $ spent on capital would, the rm can.

Related Questions

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.

aquamarineguinea-pig889

There are three types of barber shops in a competitive market in Seattle. Due to the peculiarities of zoning in Seattle, shop space can be rented in only three sizes: 1000 square feet, 2000 square feet, and 3000 square feet. For each of the three square footages, the information below shows the number of haircuts that can be sold as you increase the number of full-time barbers. The Barbers Union requires you to hire people full-time or not at all. (In other words, these are the only choices for workers and the barber shops.) For every 1000 square feet of space you rent, the annual rent is $40 per square foot and you must sign a one-year lease. The annual wage for a full-time barber is $30,000. These represent all economic costs including the normal profit.

Number of Barbers (1000 Sq. Feet)	Number of Haircuts (1000 Sq. Feet)	Number of Barbers (2000 Sq. Feet)	Number of Haircuts (2000 Sq. Feet)	Number of Barbers (3000 Sq. Feet)	Number of Haircuts (3000 Sq. Feet)
0	0	0	0	0	0
1	4000	1	4920	1	5560
2	6080	2	7480	2	7720
3	7720	3	9480	3	10520
4	8600	4	10520	4	12760
5	9320	5	11440	5	14640
6	9960	6	12240	6	16280
7	10520	7	12920	7	16400

Given the wage and rental information above, for each square footage what is the short-run average total cost of producing 10520 haircuts? [Remember that short-run average total cost includes both average variable and average fixed costs.] The long run average cost for a level of output is the lowest short run average total cost at which you can produce that output. What is the long-run average total cost of producing 10520 haircuts? Explain your choices.

For shops with each square footage, determine for each number of barbers listed, the total variable cost, total fixed cost, total cost, average variable cost, average total cost, average fixed cost, and marginal cost.

The leases for the year have all been signed and the market price is $18. What is the profit-maximizing number of barbers to hire for the shops at each square footage? What profits are earned in the barber shops with each square footage? Explain your choice.

Consider the long-run situation in the market where there is strong price competition, barbershops can change the square footage in their shop, and barber shops enter and exit the market. What do you anticipate will be the price in the long run? Based on that price, what will be the shops optimal choice of shop size and number of barbers in the shop in the long run? Explain your logic.

plumporpoise363

4. Decisions made âat the marginâ entail a choice based upon_____________ of a decision.

a. the additional benefits
b. the total costs
c. comparing the total benefits and costs
d. comparing the additional benefits and costs
5. 100 units of Good X are available but individuals desire 500units. ______________ will determine who attains Good X, and whodoes not.

a. A rationing device
b. Opportunity Cost
c. Utility
d. Natural Selection

6. Individuals will continue consuming so long as:

a. The price of a good continues to decrease
b. The marginal costs of consuming are outweighed by the marginalbenefits
c. The individual seeks additional utility
d. The individual is willing and able

8. If the cross-price elasticity of two goods is positive, thenthose two goods are
a. substitutes.
b. complements.
c. normal goods.
d. inferior goods.

11. The basic reason most supply curves are upward sloping isthat:

a. More firms are in the market, therefore more goods areproduced.
b. Because more quantity is being demanded, suppliers raise theprice.
c. Producers face higher opportunity costs when producing higherlevels of quantity, so they must receive a higher price.
d. Producers seek to maximize total revenue.

18. When the price of bubble gum is $0.60, the quantity demanded is500 packs per day. When the price falls to $0.50, the quantitydemanded increases to 900. The demand for gum would beconsidered:

a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.

20. Inefficient Production implies which of the following:

a. it is impossible to produce more of one good without producingless of another
b. there are too few resources
c. there are too many resources
d. it is possible to produce more of one good without producingless of another

21. Workers at a bicycle assembly plant currently make minimumwage. If the federal government increases the minimum wage by $1.00an hour it is likely that the

a. demand for bicycle assembly workers will increase.
b. supply of bicycles will shift to the right.
c. supply of bicycles will shift to the left.
d. firm must increase output to maintain profit levels.

24. Suppose at a price of $5 and at a price of $9, John purchases40 units of good X. Given this information, we know that Johnâsdemand for good X is
a. perfectly elastic at all prices.
b. inelastic at all prices.
c. unit elastic between the prices of $5 and $9.
d. perfectly elastic between the prices of $5 and $9.
e. perfectly inelastic between the prices of $5 and $9.

25. If the price of good A decreases by 10 percent and the quantitydemanded of good B decreases by 10 percent, this is evidence that Aand B are
a. substitute goods.
b. complement goods.
c. inferior goods.
d. normal goods.
e. not related.

6. For an individual to achieve consumer equilibrium when consumingtwo goods, A and B, the individual must satisfy the followingcondition:

a. TUA = TUB
b. TUA/PA = TUB/PB
c. MUA = MUB
d. MUA/PA = MUB/PB
e. MUA/PB = MUB/PA

7. Which of the following statements is correct regarding a firm'sdecision making?
a. The decision to shut down and the decision to exit are bothshort-run decisions.
b. The decision to shut down and the decision to exit are bothlong-run decisions.
c. The decision to shut down is a short-run decision, whereas thedecision to exit is a long-run decision.
d. The decision to exit is a short-run decision, whereas thedecision to shut down is a long-run decision.

Table 1

Output Total Cost
0 $20
1 $30
2 $41
3 $51
4 $65
5 $75
6 $84
7 $105

13. Refer to Table 1. The marginal cost of producing the fifth unitof output is
a. $55.00
b. $15.00
c. $9.00
d. $10.00

21. A perfectly competitive firm can produce its current level ofoutput at an average total cost of $10 and a marginal cost of $8.If the market price of the product is currently $8, what should thefirm do?

a. The firm should definitely shut down since average total costexceeds price.
b. The firm should shut down if average variable cost is $8 orgreater, but the firm should continue to produce the current levelof output if average variable cost is less than $8.
c. The firm should increase production in order to increaseprofit.
d. The firm should continue to produce, but it should decreaseproduction in order to increase profit.
24. In the long run all costs are variable. Thus, aprofit-maximizing firm may exit:

a. When Price < Average Total Cost
b. When Price > Average Total Cost
c. When Average Revenue > Average Fixed Cost
d. When Average Revenue > Marginal Cost

25. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price isconstant.
c. amount by which total cost rises when output is increased by oneunit.
d. amount by which output rises when labor is increased by oneunit.

26. For a perfectly competitive firm:
a. marginal revenue is equal to price.
b. price is equal to marginal cost at the output level thatmaximizes profit.
c. selling an additional unit of the good it produces increasestotal revenue by the price of the good.
d. a and b
e. a, b, and c

ECON 208 Lecture Notes - Root Mean Square, Marginal Product, Diminishing Returns

ECON 208 Full Course Notes

Document Summary

Get access

Related Documents

ECON 208 Chapter Notes - Chapter 8: Profit Maximization, Marginal Product, Technological Change

ECON 208 Chapter Notes - Chapter 10: Technological Change, Profit Maximization, Marginal Product

ECON 208 Chapter 8: CHAPTER 8

Related Questions