MGEA01H3 Chapter Notes - Chapter 7: Production Function, Opportunity Cost, Marginal Product

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aquamarineshark305

20 Feb 2016

School

UTSC

Department

Economics for Management Studies

Course

MGEA01H3

Professor

Michael H O

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MGEA01H3 Full Course Notes

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Chapter 7: producers in short run inputs grouped into 4 categories: inputs that are outputs from another firm intermediate product, inputs that are provided by nature factor of production. E. g. steel, electricity: inputs that are services of workers and managers employed by the firm, inputs that are services of physical capital factor of production facilities and machines. Production function relationship between the inputs that a firm uses and the. Factor of production labour output that it produces: q = f(l, k, where q = flow of output, k = flow of capital services, l = flow of labour services, f = production function. Production function specifies the maximum amount of output that can be obtained from any given amounts of input. Profits taking revenues obtained from selling output and subtracting all the costs associated with input. Accounting profits = revenues - explicit costs: explicit costs the costs that actually involve a purchase of goods or services by the firm.

Related Questions

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

The marginal product is defined as: (Points : 1)

a. the ratio of total output to the amount of the variable input used in producing the output
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

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)

a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy

d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)

a. defined as the amount that an additional unit of the variable input adds to the total revenue
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

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)

a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)

a. the marginal product of labor (L) is equal to ?1
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

The short-run cost function is: (Points : 1)

a. where all inputs to the production process are available
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

Theoretically, in a long-run cost function: (Points : 1)

a. all inputs are fixed
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)

a. marginal costs are constant as output increases
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above

A firm manufactures widgets according to the production function Q = 8L3/4 K1/4, where Q is the number of skis made, K is the amount of capital, and L is the amount of labor employed. The firm is currently producing Q = 120 using L = 15 and K = 15. The factor price of Labor (w) is $10 and the factor price of Capital (r) is $2. The firm suspects that it is not minimizing the cost of producing Q = 120 and has hired you, a student taking a course with the most famous economist in campus, to help it understand the nature of its inefficiency. a) At the current level of production (Q = 120) what are the marginal productivities of Labor and Capital respectively? MPL = Answer MPK = Answer b) What are the current cost of production for the company? TC = $Answer c) In order to minimize the costs of production the company should use more Answer d) In order to miminize costs of production the company should use the following input ration: K = Answer L e) Say the company wanted to continue use the same total costs as to when K and L = 15, and instead produce more output. How much output can the company produce? Q2 = ?

purplemosquito873

You manage a plant that mass-produces engines by teams of workers using assembly machines. The technology is summarized by the production function q = 5 KL, where q is the number of engines per week, K is the number of assembly machines, and L is the number of labor teams. Each assembly machine rents for r = $10,000 per week, and each team costs w = $5000 per week. Engine costs are given by the cost of labor teams and machines, plus $2000 per engine for raw materials. Your plant has a fixed installation of 5 assembly machines as part of its design. a) What is the total cost function for your plant—namely, how much would it cost to produce q engines? What are average and marginal costs for producing q engines? How do average costs vary with output? (Clue: the total cost function should be defined in terms ONLY of output, q) b) How many teams are required to produce 250 engines? What is the average cost per engine? c) You are asked to make recommendations for the design of a new production facility. What capital/labor (K/L) ratio should the new plant accommodate if it wants to minimize the total cost of producing at any level of output q? (Clue: to calculate the MRTS of labor for capital --as the ratio of marginal products of the two inputs—and, afterwards, to equal the MRTS to the ratio of input prices).

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MGEA01H3 Chapter Notes - Chapter 7: Production Function, Opportunity Cost, Marginal Product

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