ECON101 Lecture Notes - Production Function, Marginal Product, Marginal Cost

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15 Aug 2014

School

University of Alberta

Department

Economics

Course

ECON101

Professor

Yasser Fahmy

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The slope of the production function measures the marginal product of an input, such as a worker. When the marginal product declines, the production becomes flatter. From the production function to the total cost curve: the relationship between the quantity a firm can produce and its costs determines pricing decisions, the total-cost curve shows this relationship graphically. The various measures of cost: costs of production may be divided into fixed costs and variable costs. Fixed and variable costs: fixed costs are those costs that do not vary with the quantity of output produced, variable costs are those costs that do vary with the quantity of output produced. Mc =mvc(mc :marginal cost , mvc :marginal variablecost ) Average costs can be determined by dividing the firm"s costs by the quantity of output it produces. The average cost is the cost of each typical unit of product. Atc = afc + avc cost cost cost.

Related Questions

Indicate whether the following statements are true or false, and explain your answers:

a. When marginal product reaches its maximum, average product is also at its maximum.

b. When marginal product is less than average product, then it must be that average product is declining.

c. The law of diminishing marginal returns states that increases in the variable input reduce the total product.

d. A firm with one worker can produce 30 units of a product that sells for $4 per unit, but the same firm with two workers can produce 70 units of the same product. The marginal revenue product of the second worker is $400.

e. A firm can maximize profit in Stages I or II of production, but not Stage III.

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

1) TRUE or FALSE ( Explain the answer succinctly but completely). Please use graph to aid your explanation and ensure your text describes what your graph shows and how the different components of the graph are derived.

a) True or False: As long as MR=MC, a firm should produce and sell its product.

b) True or False: A firm can always increase profit by increasing the price they charge

c) True or False: If the production function exhibits diminishing marginal productivity as the level of input use increases, the marginal cost curve will be upward sloping.

d) True or False: When demand is inelastic, a decrease in price increases total revenue for the firm.

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ECON101 Lecture Notes - Production Function, Marginal Product, Marginal Cost

ECON101 Full Course Notes

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