ECON 1110 Lecture Notes - Lecture 10: Variable Cost, Marginal Revenue, Diminishing Returns

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magentaherring519

4 Feb 2016

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Lecture #10 short run costs and output decisions september 24, Three central questions: how much of each output (product or service) to supply. Need to know market price of output. Output price determines revenues: which production technology to use. Need to know available technologies: how much of each input (land, labor, capital) to demand. Need to know prices of inputs. Production techniques and input prices determine costs. Costs: fixed cost (rent) nothing, variable cost (wages, total cost = fc + vc. Any cost that does not depend on the firm"s level of output. These costs are incurred even if the firm is producing. Any cost that depends on the level of production chosen. Quantity of output 0-5: total fixed costs (horizontally fixed line, average fixed cost - (curve asymptotically approaches. Shows the spreading out of fixed cost across whatever the.

Related Questions

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

Q1) Soundscape Enterprises manufactures Sonoblast, a device that produces a high-pitched reminder to telemarketers that they have once again disturbed you just when you were sitting 1â2 down to dinner. The production function for Sonoblasts is given by the formula Q = 2KL where Q is in units of output per period, K is in machine-weeks per period, and L is in labour- weeks per period. The machine rental rate r is $512 per machine-week and the wage rate w is $128 per labour-week. In the short run, K is fixed at 4 machine-weeks per period.

a. Give the formulas for the short-run production function and the marginal product of labour (MPL) function.

b. Express variable cost (VC), total cost (TC), and marginal cost (MC) as functions of L and as functions of Q; and average variable cost (AVC), average fixed cost (AFC) and average total cost (ATC) as functions of Q.

c. At what level of Q is ATC minimized? What are the values of ATC and of MC at this level of output?

d. If K is increased to a fixed 16 units, at what level of Q is ATC minimized, and what are the values of ATC and of MC at this level of output?

e. In the long run, with all inputs variable, what is the optimal K/L ration with input prices unchanged? How many units of L and of K would be required to produce the levels of output in 1c and in 1d and what is the average cost of producing Sonoblasts in each case? Explain the relation between your results here and those for 1c and 1d.

lilacchinchilla474

You manage a plant that mass-produces engines by teams of workers using assembly machines. The technology is summarized by the production function q = 5 KL, where q is the number of engines per week, K is the number of assembly machines, and L is the number of labor teams. Each assembly machine rents for r = $10,000 per week, and each team costs w = $5000 per week. Engine costs are given by the cost of labor teams and machines, plus $2000 per engine for raw materials. Your plant has a fixed installation of 5 assembly machines as part of its design. a) What is the total cost function for your plant—namely, how much would it cost to produce q engines? What are average and marginal costs for producing q engines? How do average costs vary with output? (Clue: the total cost function should be defined in terms ONLY of output, q) b) How many teams are required to produce 250 engines? What is the average cost per engine? c) You are asked to make recommendations for the design of a new production facility. What capital/labor (K/L) ratio should the new plant accommodate if it wants to minimize the total cost of producing at any level of output q? (Clue: to calculate the MRTS of labor for capital --as the ratio of marginal products of the two inputs—and, afterwards, to equal the MRTS to the ratio of input prices).

crimsonmink954

ECON 1110 Lecture Notes - Lecture 10: Variable Cost, Marginal Revenue, Diminishing Returns

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