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MGEA02H3 Chapter Notes - Chapter 8: Marginal Product

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School
UTSC
Department
Economics for Management Studies
Course
MGEA02H3
Professor
Gordon Cleveland

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MGEA02H3 Full Course Notes
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MGEA02H3 Full Course Notes
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Document Summary

8. 1 t he long run: no f ixed factors. Technical efficiency is when a given number of inputs are combined to maximize the level of output. cost minimization is an implication of profit maximization that firms choose the production method that produces any given level of output at the lowest possible cost. The necessary condition for cost minimization: (mpk / pk) = (mpl / pl) whenever the ratio of the marginal product of each factor to its price is not equal for all factors, there are possibilities for factor substitutions that will reduce costs. The law of diminishing returns says that, with other inputs held constant, an increase in the amount of one factor used will decrease that factor"s marginal product. profit-maximizing firms adjust the quantities of factors they use to the prices of the factors given by the market.

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Related Questions

A distinguishing feature of an oligopolistic industry is the tension between

a.profit maximization and cost minimization.

b.cooperation and self-interest.

c.producing a small amount of output and charging a price above marginal cost.

d.short-run decisions and long-run decision

Productive efficiency refers to:

A. Cost minimization, where P = minimum ATC Production

B. Production where P = MC

C. Maximizing profits where MR = MC

D. Production where TR = TC

A producer produces good y using a single input x according to the production function y=x^a where 0<a<1. The producer can sell as much as he wants at a unit price p, but must pay wage w for every unit of x used.

1) What are the first and second-order conditions for the profit maximization problem?

2) Derive the expression for the profit maximizing level of output y*(p,w,a), the profit maximizing level of input x*(p,w,a), and the optimal profit pi*(p,w,a) = py*(p,w,a)