ECON 101 Lecture Notes - Lecture 11: Marginal Product, Production Function, Sunk Costs

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Rst worker employed generates an increase in output of 19 units of output, the second worker generates an. Shows increasing marginal product initially due to specialization, but eventually diminishing marginal product. Explicit cost: is a cost that involves actually laying out money. Direct, out-of-pocket payments for inputs into the production process: accounting costs. Implicit costs: does not require an outlay of money; it is measured by the value, in dollar terms, of the bene ts that are forgone: economic costs. Opportunity cost: the highest valued alternative that must be sacri ced in order to get something else: both implicit and explicit costs are opportunity costs. Fixed costs are not zero, short run average xed cost for rm will always decline as output increases. Production function explicitly represents relationship between quantity pf inputs used and the max amount of output that can be produced with those inputs.

Related Questions

Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

The marginal product of labor is the increase in output resulting from a one-unit increase in the amount of labor employed. In my own opinion, the statement can be true in the sense that, as the firm produces more and more the cost of production has to come down first; that becomes constant or minimum and then starts to increase. The marginal cost is also a U-shaped curve that first falls then reaches a minimum and starts rising. The reason for rising marginal costs in the short term will only be an increase in the wages as the only factor which is variable in the short-run is labor whereas all factors are kept fixed, so the fixed costs will keep coming down. If you increase labor, you are going to suffer from diminishing marginal returns. And in the long-run, one will suffer diminishing returns from both input factors, labor, and capital.

The short-run cost relationship between the marginal product of labor and the marginal cost, the labor is variable. We have already established that there are diminishing marginal returns because the labor decreases. To increase output in the short-run, a firm must increase the amount used of a variable input. The marginal product reduces, not because consecutive workers are lesser, but because more workers are being used relative to the amount of equipment that is available, what they have left to work with. An example; if a clinic has only one dentist on duty and several assistants are available and we have a lot of patients waiting to see that doctor, the number of patients served by this office cannot increase without limit. The excess assistants will not be able to increase the number of patients in the office, not because they are not reliable or good enough, but because they cannot perform the doctor's job, and there is only one doctor in the office.

https://www.quora.com/Why-does-the-marginal-cost-curve-slope-upwards

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Question:

Answer:

https://www.quora.com/Why-does-the-marginal-cost-curve-slope-upwards

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(1)

Which of the following employment situations would most closely approximate a monopsony?

	a steel mill in Yokahama, Japan.
	a fast food restaurant in a big city.
	a farmer hiring seasonal workers.
	a large factory in a small town.

(2)

If a monopsonist hires labor, it will choose to hire that quantity at which ___________ and pay a wage rate that is _______________.

	MR = MC; equal to the MRP curve.
	the supply curve intersect the MRP; less than MFC
	MRP = MFC; less than MRP
	the supply curve intersect the MRP; equal to MRP

(3)

Suppose a firm employs both labor and capital. If the ratio of marginal product to price of labor is 50/$10 and the ratio of marginal product of capital to price of capital is 60/$12, the firm should

	maintain the current combination capital and labor.
	buy more labor and less capital because labor is cheaper.
	buy more capital and less labor because capital is cheaper.
	buy more capital because it is more productive than labor.

(4)

Derived demand for labor means that when a firm hires labor, it has to derive its demand

	mathematically.
	based on the labor supply.
	from the demand for the product that the labor produces.
	based on the minimum wage.

(5)

For a firm in perfect competition, the value of the marginal product is

	the value of an additional unit of output measured in terms of additional cost.
	the total value of the total output output divided by the total output.
	additional revenue minus additional cost as a result of an increase in output.
	the price of the product multiplied by the additional output resulting from an additional unit employed.

(6)

A firm that is perfectly competitive will hire labor as long as which of the following is true?

	VMP < W.
	VMP > W.
	MC > MR.
	VMP < MRP.

(7)

The VMP curve slopes downward at some point because

	congestion in the work place lowers marginal product.
	teamwork in the work place increases marginal product.
	the firm hires less labor as the wage rate rises.
	labor supplies less amounts of labor as the wage rate falls.

(8)

Which of the following would not be considered capital in a business?

	The employees
	The factory
	A machine
	Tools

(9)

The increase in the value of a firmâs capital as it increases in age and use is depreciation.

	true
	false

(10)

On a labor market graph, a firmâs demand for labor is

	the wage rate.
	the marginal revenue product curve.
	the marginal product curve.
	indeterminant.

(11)

Why may a householdâs labor supply curve bend backwards at some wage rate?

	The household substitutes labor for leisure.
	The household substitutes leisure for labor.
	Employers demand fewer employees at higher wage rates.
	Households want to supply more labor as the wage rate decreases to maintain incomes.

(12)

The substitution effect is usually stronger than the income effect, thus creating an upward sloping labor supply curve.

	true
	false

(13)

An inelastic demand for labor means that an increase in the wage rate causes a less than proportionate decrease in the quantity of labor demanded.

	true
	false

(14)

Marginal revenue product is

	marginal revenue divided by marginal product.
	marginal revenue times marginal product.
	marginal product minus marginal revenue.
	marginal product plus marginal revenue.

(15)

A firm obeys the least-cost rule by equating the ratios of ___________________ to the ________________ price.

	marginal product; product
	marginal product; factor
	marginal cost; product
	marginal revenue; product

(16)

Suppose the MP of the last unit of capital hired equals 12 and the MP of the last unit of labor hired equals 16.If the price of capital is $8 per unit and the price of labor is $8 per unit, then the firm

	is maximizing its costs with this combination of factors.
	is maximizing its profits with this combination of factors.
	should hire more labor and less capital in order to minimize its costs.
	should hire more capital and less labor in order to minimize its costs.

(17)

For a firm to minimize its costs with more than one factor of production, for every factor, the ratio of the

	marginal product to factor price must be equal.
	marginal revenue product to factor price must be equal.
	marginal revenue product to output must be equal.
	marginal cost to factor price must be equal.

(18)

A monopsony is a firm that, in a specific market, is the only

	seller of a product.
	buyer of a product.
	seller of a factor of production.
	buyer of a factor of production.

(19)

Which of the following businesses would most closely approximate a monopsonist?

	A steel mill in Pittsburgh
	A fast food franchise in a large city
	A large manufacturer in a rural county
	A rancher who hires ranch help

(20)

A firm has the opportunity to buy a machine that costs $2500. It has found the present value of the income generated by the machine to be $2487. It should purchase the machine.

	true
	false

(21)

An increase in the market rate of interest causes

	a leftward shift in the demand for capital curve.
	a rightward shift in the demand for capital curve.
	a movement up the demand for capital curve.
	a movement down the demand for capital curve.

(22)

The characteristic of capital that makes it different from labor is its

	high cost.
	durability.
	rotunda.
	relatively low cost compared to labor.

(23)

The present value of $1000 one year in the future at a 10 percent interest rate is approximately

	$870.
	$909.
	$1000.
	$1909.

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ECON 101 Lecture Notes - Lecture 11: Marginal Product, Production Function, Sunk Costs

ECON 101 Full Course Notes

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