Economics 1021A/B Lecture Notes - Lecture 16: Production Function, Average Cost, Average Variable Cost

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ECON 1021A/B Full Course Notes

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Room assignments sent out in a couple of days. Distinguish between the short run and long run. We are focusing on 2 factors of production: Today: the sr: labor (variable in sr, capital (fixed in sr) Explain the relationship between a firm"s output and labor employment in. Explain the relationship between a firm"s output and costs in the short run and derive a firm"s short-run cost curves. Explain the relationship betweena firm"s output and costs in the long run and derive a firm"s long-run average cost curve. Must think about how productivity effects average costs: Average total cost= total costs/total units of output. Is the increase in total cost that results from a one-unit increase in total product. Over the output range with increasing marginal returns, marginal cost falls as output increases. Over the output range with diminishing marginal returns, marginal cost rises as output increases. Average cost measures can be derived from each of the total cost measures:

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36) A firm encountering economies of scale over some range of output will have a:

a) rising long-run average cost curve.

b) falling long-run average cost curve.

c) constant long-run average cost curve.

d) rising, then falling, then rising long-run average cost curve.

37) When a firm doubles its inputs and finds that its output has more than doubled, this is known as:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) a violation of the law of diminishing returns.

38) The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:

a) economies of scale.

b) normative economies.

c) diminishing marginal returns.

d) an increasing marginal product of labor.

39) If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) increasing the average total costs.

40) Economies and diseconomies of scale explain why the:

a) short-run average fixed cost curve declines so long as output increases.

b) marginal cost curve must intersect the minimum point of the firm's average total cost curve.

c) long-run average total cost curve is typically U-shaped.

d) short-run average variable cost curve is U-shaped.

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Question 4
a. Explain the relationship between the income effect and the added worker effect
b. With reference to output and substitution effects, explain why and how an increase in the wage rate of autoworkers will generate a negative employment response in the long run than in the short run. Assume no changes in prices on non labour input and assume labour productivity remains constant.

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7.) At the level of output where marginal revenue equals marginal cost, assume that the price of a competitive firm's product is between the firm's average total cost curve and its average variable cost curve. In this case the firm would
A. decrease output to reduce the costs.
B. continue to operate in the short run.
C. shut down.
D. increase output to increase profit.
8.) The lowest point on the firm's long-run supply curve is
A. the shutdown point.
B. the break-even point.
C. between the shutdown point and the break-even point.

Economics 1021A/B Lecture Notes - Lecture 16: Production Function, Average Cost, Average Variable Cost

ECON 1021A/B Full Course Notes

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