ECON 1100 Chapter Notes - Chapter 12: Perfect Competition, Deadweight Loss, Average Variable Cost

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coffeebuffalo475

23 Apr 2016

School

University of Windsor

Department

Economics

Course

ECON 1100

Professor

bajic

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Document Summary

When the firm chooses along all available production methods to produce a given level of output at the lowest possible cost. When the industry is producing a given level of output at the lowest possible cost. This requires the marginal cost to be equated across all firms in the industry. Firms a and b are productively efficient as seen by the following diagram: every firm is trying to minimize their total cost. If pl goes up, use less l and more k. K/l ratio will go up: for the entire industry, the marginal cost has to be the same for all firms. Firm a: started with 10 units of output. Decrease by 2 units, total cost goes down by 120 + 20 = 140. Firm b: started with 8 units of output. Increases by 2 units, total cost goes up by only 80 + 20 = 100 customer wants more.

Related Questions

Consider three firms, A, B and C all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms. Firm A Firm B Finn C Cost (S) Quantity Cost (S) Cost (5) MCB o o - N - N 200 200 500 700 Quantity of potatoes 500 800 900 Quantity of potatoes 500 800 Quantity of potatoes FIGURE 12-1 30) Refer to Figure 12-1. Suppose each of Firms A, B, and Care producing 500 kilos of potatoes. Is this industry productively efficient? A) No, because the marginal cost curve for each firm has a different slope. B) Yes, because output is equated for all firms. C) No, because each firm could easily produce more than 500 kilos. D) No, because marginal costs are not equated for all firms. E) It is not possible to say whether this industry is productively efficient because we do not know the market price of the product.

You are an efficiency expert hired by a firm in the clothing industry that uses machines (K) and workers (L) as inputs. The firm has estimated that the marginal product of labor is MPL = 120 - 4 L, while the marginal product of capital is MPK = 50 - 5 K. The firm is currently using 25 units of L and 7 units of K. If w = $20, r = $15 then

a. the firm is minimizing the cost of producing the given quantity of output.

b. the firm should use less L and more K to minimize the cost of producing the given quantity of output

c. the firm should use less K and more L to minimize the cost of producing the given quantity of output

d. the firm is profit maximizing but not cost minimizing

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34. All firms in an industry have the same costs. Assume that all other firms in the industry are in short-run equilibrium. However, at the current level of output of one particular firm, AC-MC>P-MR>AVC. If nothing changes, this firm should: (A) decrease its output. (B) increase its output. (C) keep output constant. (D) shut down in the short run. ((E) decrease output in the short run and shut down in the long run. (F) increase output in the short run and shut down in the long run. (G) adjust output until Total Revenue = Total Cost. (H) produce where the marginal cost curve just cuts the demand curve in the short and long run. (1) none of the above.

ECON 1100 Chapter Notes - Chapter 12: Perfect Competition, Deadweight Loss, Average Variable Cost

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