ECO100Y1 Lecture Notes - Diminishing Returns, Marginal Product, Marginal Cost
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13 Jan 2013
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Production function: relates the output to quantity of inputs (capital, labour) One input (capital) is fixed, while one input (labour) can vary. Short run: gm can vary amount of labour (overtime, lay-offs) Long run: gm can vary number of plants and amount of labour. Total product (tp) -> total output, given labour input. Increase in total output divided by increase in labour input. Law of diminishing returns: the marginal product of a variable input, in the presence of a fixed input, eventually diminishes i. e. keep increasing labour, only have one factory, space will eventually run out, productivity decreases. As number of farm workers increases, the amount of land available to each worker falls, and marginal product of each additional farm worker eventually falls. Total variable cost (tvc): total of all costs total cost of fixed input total cost of variable input. Increase in total cost divided by increase in output. Mc = change in tc/change in quantity output.
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The law of eventually diminishing marginal returns: (Points : 1)
a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y d. None of the above |
b. the marginal rate of technical substitution c. equal to MPx/MPy d. all of the above e. none of the above |
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained d. a and b e. a and c |
b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above |
b. the average product of labor (L) is equal to ?2 c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent d. a and b e. a and c |
b. relevant to decisions in which one or more inputs to the production process are fixed c. not relevant to optimal pricing and production output decision facilities d. crucial in making optimal investment decisions in new production facilities e. none of the above |
b. all inputs are considered variable c. some inputs are always fixed d. capital and labor are always combined in fixed proportions |
A linear total cost function implies that: (Points : 1) |
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above