ECON 2310 Lecture Notes - Lecture 8: Opportunity Cost, Isocost, Marginal Product

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ceruleanalpaca747

13 Jan 2018

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Document Summary

Total cost: expenditure required to produce a particular level of output in its most economical way. Need this to make good pricing and output decisions. Varia(cid:271)le (cid:272)osts: (cid:272)osts of i(cid:374)puts that (cid:448)ar(cid:455) (cid:449)ith the fir(cid:373)"s output le(cid:448)el (cid:894)la(cid:271)our a(cid:374)d (cid:373)aterials(cid:895). Fi(cid:454)ed (cid:272)osts: (cid:272)osts of i(cid:374)puts (cid:449)hose use does (cid:374)ot (cid:448)ar(cid:455) (cid:449)ith the fir(cid:373)"s output le(cid:448)el, pro(cid:448)ided it remains in operation. Fixed cost is avoidable if the firm does(cid:374)"t i(cid:374)(cid:272)ur the (cid:272)ost (cid:894)or (cid:272)a(cid:374) re(cid:272)oup it(cid:895) if it produ(cid:272)es (cid:374)o output. A cost incurred even if the firm decides not to operate is sunk. An input that is variable can create either a variable cost or an avoidable fixed cost. The (cid:272)ost of usi(cid:374)g a stored i(cid:374)put = the pri(cid:272)e at (cid:449)hi(cid:272)h the fir(cid:373) (cid:272)ould sell it. By using the inputs, the firm foregoes the opportunity to sell them. If a well-functioning market for capital exists, then the cost of using the capital is = to the market rental price.

Related Questions

Assume that a firm in a perfectly competitive market can sell its product for $35 (ie price per unit of output). Furthermore, it faces the following costs:

Output (Q)	Total Cost
0	25
1	50
2	100
3	120
4	155
5	190
6	250
7	390

a) Calculate Total revenue (TR), Marginal Cost (MC), Fixed Cost (FC), Variable cost (VC), and Average Cost (AC).
b) What is the profit-maximizing output level?
c) Is this firm is making a profit or loss at the profit-maximizing output level? Explain.
d) Do you think the firm will continue its production in the short run?
e) What will be the long-run price in this market?

tealwombat791

1. A firm's total cost of producing 50 units of output is $1,000. At this output level, average fixed costs are equal to $10. It follows that the firm's average variable costs are equal to _____.

2. To maximize profits, a price-taking (i.e., competitive) firm should produce its output up to the level where

a. the market price of the firm's product is equal to its total variable cost.

b. the market price of the firm's product is equal to its s total cost.

c. the market price of the firm's product is equal to its marginal cost.

d. marginal cost is equal to average cost.

e. none of the above.

3. To minimize losses, a competitive firm should shut down if the price is less than

a. average cost.

b. average variable cost.

c. total cost.

d. marginal cost.

e. average total fixed cost

orchidminnow543

The law of eventually diminishing marginal returns: (Points : 1)

a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above

The marginal product is defined as: (Points : 1)

a. the ratio of total output to the amount of the variable input used in producing the output
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y
d. None of the above

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)

a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy

d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)

a. defined as the amount that an additional unit of the variable input adds to the total revenue
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained
c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained
d. a and b
e. a and c

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)

a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)

a. the marginal product of labor (L) is equal to ?1
b. the average product of labor (L) is equal to ?2
c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent
d. a and b
e. a and c