Describe the Behavior of the profit-maximizing firm. How does the firm account for costs? Define and explain the two types of costs associated with production? How do decisions change from the short-run to the long-run?

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Joshua StredderLv10

28 Sep 2019

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Consider Patâs Pizza Restaurantâs production decision in both the short-run and longârun. Pat wants to improve the productivity of the firm in the long run. Explain the types of input costs that might be fixed in the shortârun and types of costs that may be variable in the longârun. Provide examples for fixed inputs and variable inputs as well as fixed costs and variable costs for the Restaurant in the short run. What long run economic decisions should Pat make to increase productivity, minimize costs, and maximize profit?

Marginal Product of Capital	4,000
Marginal Produce of Labor	100
Wage Rate	$10
Rental Price of Pizza Ovens	$500

11. [3 Marks] Assume no change in the LRATC.? All firms in a perfectly competitive market have access to the same technology and input prices. Production entails a $1000 per period fixed cost. A firm sells 1000 units a price of $10, incurring an average of $8 per unit in variable costs. A. The firm must increase output to increase short-run profits. B. The firm must decrease output to increase short-run profits. C. Assuming this firm is maximizing short run profits, it will produce less in future periods as the market price will decrease in the long run. D. Assuming this firm is maximizing short run profits, it will produce more in future periods as the market price will increase in the long run. E. Assuming this firm is maximizing short run profits, it will continue to produce 1000 units in the long run.

3. Cost of Production 1

a. Explain the difference between explicit costs and implicit costs and who would care about these terms and why.

b. From the point of view of a firm, how would you explain the difference between the short run and long run, and their impact on the decision-making of the firm?

i. How do you tell short run from long run and how will those distinctions impact the decision-making of the firm?

c. Your boss asks you to document your companiesâ production function. How would you do that? What information would you need? Where would you get that info? Be specific.

i. What does the production function consist of?

ii. What does it tell us?

iii. How would you approach defining your company production function?

d. List and explain the Short Run Production Relationships