ECON 200 Lecture Notes - Lecture 15: Diminishing Returns, Marginal Cost, Marginal Product

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blackjackal5

20 Nov 2018

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Economics

Course

ECON 200

Professor

Salehi-Esfahani

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ECON 200 Lecture Notes - Lecture 14: Influence Peddling, Price Ceiling, Price Floor

ECON 200 Lecture Notes - Lecture 15: Diminishing Returns, Marginal Cost, Marginal Product

ECON 200 Lecture Notes - Lecture 18: Diminishing Returns, Marginal Cost, Marginal Product

Document Summary

The rent in production of bread is therefore, the excess valuation of consumers in use of resources in bread production as opposed to production of some other good. This rent, however, goes to the entrepreneur, the person who produces bread. Property rights form the basis for all market exchange, and the allocation of property rights in a society affects the efficiency of resource use1 (investopedia. com) Private property rights are the rights of an individual to: Own assets (i. e. homes, businesses, cars, boats, stocks, bonds) Transfer the rights of those assets to another (i. e. children, family, friends) Dispose of those assets (within the law) as they please. Corollary/conclusion to the role of rents in economic efficiency: Presence of rents in a system of clearly defined and enforced private property ensures efficiency (maximum gains from trade and allocation of resources to production where consumers value them most). Economy with equal distribution of rents and equity.

Related Questions

1) The supply curve of a perfectly competitive firm is

a) Its entire MC curve

b) The upward-sloping portion of its MC Curve

c) It's MC Curve above shutdown point

d) Its MR Curve

2. The Long Run supply curve in a constant cost industry is

a) Upward sloping and linear

b) Downward sloping and linear

c) Horizontal and linear

d) Concave upwards

3. The curve which shows different combinations of inputs that yield the same level of output, is called

a) An isoquant

b) An isocost curve

c) Production function

d) Production possibility curve

4. When labor used is 12 units and output is 36, then

a) The marginal product of labor is 3

b) The total product of labor is 1/3

c) The average product of labor is 3

d) None of the above

5. Say the average product of 6 workers is 15. If the marginal product of the 7^th worker is 18, then

a) Marginal product is falling

b) Marginal product is constant

c) Average product is rising

d) Average product is falling

6. Which one of the following statements is TRUE?

a) AP_L cuts the MP_L curve from above

b) MP_L cuts the AP_L curve from above, at the maximum point of the AP_L curve

c) Average and marginal product do not intersect

d) AP_L cuts the MP_L curve from below.

7. The MRTS is equal to the

a) The slope of the total product curve

b) Change in output divided by the change in labor

c) Change in output minus the size of capita

d) Ratio of the marginal products of the inputs

silvermallard649

Ticket Services, Inc., offers ticket promotion and handling services for concerts and sporting events. The Sherman Oaks, California, branch office makes heavy use of spot radio advertising on WHAM AM, with each 30-second ad costing $100. During the past year, the following relation between advertising and ticket sales per event has been observed.

Sales = 5,000 + 100A - 0.5A²

where, A represents a 30-second radio spot ad, and sales are measured in numbers of tickets.

You also know Sales (units)/ Advertising = 100 A, and that each ticket sells for $2.

A. If the relationship between advertising and ticket sales can be interpreted as a production function, with advertising as input and sales as the output, then calculate the number of radio ads that should be used for maximizing profits from ticket sales. Show your calculations.

B. Does this production function of ticket sales exhibit increasing or diminishing returns to advertising? Explain.

2. You are a manager at Glass Inc. a mirror and window supplier. Recently, you conducted a study of the production process for your single-sided encapsulated window. The results from the study are summarized below and are based on the fixed 8 units of capital currently employed at your plant. Workers are paid $60 per unit and your encapsulated windows sell for $12 each.

Labor	Output
0	0
1	10
2	30
3	60
4	80
5	90
6	95
7	95

What is the optimal amount of workers that you should employ to maximize profits in the short run? Show your calculations in form of a detailed table which you used to arrive at your answer.

Note: If you want you can do the calculations in Excel and submit the Excel file (printed or electronically through Dropbox) for the calculations part of your answer.

3. Boeing Commercial Airline Group (BCAG), a U.S. company, combines efforts of capital and more than 90,000 workers to produce commercial airplanes. Suppose the European company, Airbus, enjoys a similar production technology and produces similar airplanes, but labor costs are higher in Europe than in the United States.

A. Following the rule of optimal input usage, should Airbus employ a more labor-intensive or capital-intensive production process compared to Boeing? Explain in detail.

B. Given your answer above, would you expect workers at Airbus to have the same, higher, or lower marginal product compared to workers in Boeing? Explain carefully.

purplesquirrel262

MULTIPLE CHOICE.

1) Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?

A) The AP curve intersects the MP curve at minimum MP.

B) If MP is less than AP, then AP is increasing.

C) If MP is greater than AP, then AP is falling.

D) The MP curve intersects the AP curve at maximum AP.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

2) If, for a particular short-run production, we observe that marginal product is decreasing we can conclude that average product is decreasing as well.

MULTIPLE CHOICE.

3) An implicit cost is defined as:

A) the amount by which the money spent on an input to production exceeds its opportunity cost.

B) the difference between an input's explicit cost and its actual cost.

C) the opportunity cost of using a resource that is not explicitly paid out by the firm.

D) the amount by which economic profit exceeds accounting profit.

MULTIPLE CHOICE.

4) The amount of output a firm can produce with a given quantity of fixed and variable inputs is called:

A) total fixed product.

B) average variable product.

C) marginal product.

D) total product.

5) Which of the following statements is true of the relationship among the average cost functions?

A) AFC = ATC + AVC

B) ATC = AFC - AVC
C) AVC = AFC + ATC

D) AFC = ATC - AVC

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

6) A firm's production function is the relationship between the factors of production and the resulting outputs of the production process.

MULTIPLE CHOICE.

Scenario 2:
Output (Q): 0 1 2 3 4 5 6

Total Cost (TC): $24 $33 $41 $48 $54 $61 $69

7) Refer to Scenario 2. Diminishing marginal returns starts to occur between units:

A) 2 and 3.

B) 3 and 4.

C) 4 and 5.

D) 5 and 6.

8) Which of the following would be classified as a short-run decision?

A) trucking firm's decision to move to a smaller facility.

B) A firm's decision to decrease the amount of electricity used in day-to-day operations by encouraging employees to adopt conservation strategies, e.g., shut off lights when leaving a room.

C) A university's decision to add a new residence hall.

D) A restaurant's decision to increase the number of patrons it can accommodate by adding on a new dining room.

9) Economic profit is equal to the difference between: 9)

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

10) At the point where a firm incurs diminishing marginal returns, total product will begin to decline.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

11) In the context of a production function, the remote order takers in the fast food industry would be classified as:

A) a fixed input.

B) a marginal input.

C) an inframarginal input.

D) a variable input.

Scenario 3:
Total Product (Q): 0 1 2 3 4 5 6

Total Cost (TC): $50 $80 $105 $125 $155 $195 $250

12.

13.

increase; lower

decrease; lower

increase; higher

decrease; higher

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

14.

15.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

16) A labor-intensive method of production is one that:
A) combines a small but sophisticated labor force with a large amount of capital.

B) requires employees to work harder than they would in other occupations.
C) relies on large quantities of labor and smaller quantities of capital equipment. D) relies exclusively on labor.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

17) Assume a firm produces 500 units of a good by using two inputs, capital and labor, whose per unit prices are $10 and $4. Assume also that the marginal physical product of the last unit of capital is 30 and the marginal physical product of the last unit of labor is 10. To minimize costs this firm should employ:

A) more labor and less capital. B) more capital and less labor.
C) the existing combination of resources. D) both more labor and more capital.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

18) All else constant, a decrease in the per unit price of labor would create an incentive for a firm manager to substitute labor for capital in the firm's production process.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

19) All else constant, as the price of petroleum increases relative to the prices of other inputs to the production process, in their effort to minimize their total costs of production, we can expect to see firms employ:

A) the same amount of petroleum since there are no substitutes for petroleum. B) less petroleum and more of the other inputs to production.
C) less of each of the inputs of production.

D) more petroleum and less of the other inputs to production.

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ECON 200 Lecture Notes - Lecture 15: Diminishing Returns, Marginal Cost, Marginal Product

ECON 200 Lecture Notes - Lecture 14: Influence Peddling, Price Ceiling, Price Floor

ECON 200 Lecture Notes - Lecture 15: Diminishing Returns, Marginal Cost, Marginal Product

ECON 200 Lecture Notes - Lecture 18: Diminishing Returns, Marginal Cost, Marginal Product

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