ECON101 Chapter Notes - Chapter 11: Average Variable Cost, Average Cost, Diminishing Returns

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pucecoyote5

17 Jun 2017

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Maria Viola

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ECON101 Full Course Notes

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Decisions are aimed at achieving the one overriding goal: maximum attainable profit. Decisions about the quantity to produce and the price to change depend on the type of market in which the firm operates. All types of firms in all types of markets make similar decisions about how to produce. The short run is a time frame in which the quantity of at least one factor of production is fixed. For most firms, capital, land and entrepreneurship are fixed factors of production and labour is the variable factor of production. Fixed factors of production are the firm"s plant. The long run is a time frame in which the quantities of all factors of production can be varied. A period in which the firm can change its plant. Long run decisions are not easily reversed: once a plant decision is made the firm usually must live with it for some time.

Related Questions

17) The short run is a time frame in which A) at least one factor of production is fixed. B) the amount of output produced is fixed. C) the firm is not able to hire more workers. D) there is a shortage of most factors of production E) there is not enough time to make all of the decisions necessary to maximize profit.

16) The long run is a time frame in which A) the firm can hire all the workers it wants to employ, but it does not have sufficient time to buy more equipment. B) the firm is able to maximize revenue. c) the quantities of all factors of production can be varied. D) economic efficiency is achieved. E) the firm may want to build a bigger plant, but cannot do so.

Consider a firm whose technology is given by the production function: y = f (K,L) = (N+1)L + 2√K. Assume that input prices for labour, L, and capital, K, are w = 1 and r = 2 respectively. a)Find the firm’s short run total cost function assuming the firm cannot hire more workers nor fire its only worker, i.e. L = 1 is fixed.

b)Find the firm’s short run marginal cost, average variable cost and average fixed cost. Draw the three of them in the same graph. What is the short-run supply of the firm?

c)Find the firm’s long run total cost function, i.e. when all factors are variable.

d)Find the firm’s long run marginal cost and average cost. Draw them in the same graph. What is the long-run supply of the firm?

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ECON101 Chapter Notes - Chapter 11: Average Variable Cost, Average Cost, Diminishing Returns

ECON101 Full Course Notes

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