ECON 101 Lecture Notes - Lecture 8: Diminishing Returns, Technological Change, Profit Maximization

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Chapter 8 (textbook): producers in the long run: Technical efficiency: when a given number of inputs are combined in such a way as to maximize the. Using no more of all inputs than necessary the firm does not want to waste any level of output. valuable inputs. For firms: in order to maximize its profit, the firm must choose from among the many technically efficient options the one that produces a given level of output at the lowest cost. Example: if it wants to maximize its profits, it should choose the lowest cost combination of labour and capital. Such choices about how much capital and labour to use are: Long run choices: all factors of productions are assumed to be variable. Cost minimization: an implication of profit maximization that firms choose the production method that produces any given level of output at the lowest possible cost. K = capital , l = labour , pl and pk.

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 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

1. If the price faced by a competitive firm is greater than its average variable cost, the firm:

a. should produce the output level where P=MC and it is making a positive profit
b. should produce that output level where P=MC and it is incurring loss
c. should produce that output level where P=MC and it may make a positive profit or incur a loss
d. none of the above

2. When a firm in perfect competition is maximizing profits and produces that level of output where price, marginal revenue, marginal cost, average total cost, long-run marginal cost, and long run average total cost are all equal, the firm:

a. earns a positive economic profit and it serves to signal other competing firms to enter the market
b. earns a positive economic profit that can be continued in the long run
c. earns zero economic profit and is in a long run equilibrium
d. incurs a loss and will shut own in the long run

emeraldrat340

Question:

Evaluate the following statement:

In the short-run, information about a perfectly competitive firm's fixed costs is needed to determine both the profit-maximizing level of output and the amount of profit earned when producing that level of output.

Answer:

The objective of a firm is to maximize profits. In determining output, the firm may be subject to two constraints: costs of production and consumer demand. The price that a perfectly competitive firm may sell its products, is determined by consumer demand. Production costs are determined by the technology used. Profits are the difference between total revenues and total costs. Pertaining to short-run profit maximization, firms maximize profits by choosing the output level where its marginal revenue equals its marginal cost.

Farnham, P. G. (2014). Economics for Managers (3rd Ed.).

I need a peer reply for this, please.

sangriacockroach968

ECON 101 Lecture Notes - Lecture 8: Diminishing Returns, Technological Change, Profit Maximization

ECON 101 Full Course Notes

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