ECON 1000 Chapter Notes - Chapter 10: Average Variable Cost, Lagrangian Point, Diminishing Returns

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10 Feb 2016

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The short run: a period of time which there is a fixed scale (or a fixed factor) of production. It is difficult to build a nuclear power plant in a few months. So in the short run, a firm"s plant is fixed. The firm can increase its output by hiring more people. The long run: a period of time in which the firm can change its plant. In the long run, the firm can increase it output by changing the plant size and by hiring more people. There are no fixed factors of production in the long run. Production: the process by which inputs are combined, transformed, and turned into outputs. Describing the relationship between output and the quantity of labour employed using the following three concepts: The total amount that is produced during a given period of time. Total product is graphed as a function of labour input.

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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?

coralpug822

When demand for a firm's product increases, the firm can take a number of steps to increase quantities supplied to the market. Some are listed below. Rank them by how quickly the firm can implement them. Explain your ranking. Which actions are short run and which are long run?
a. Begin a second product shift by hiring more workers.
b. Build a second production line in the existing plant.
c. Buy more materials and increase the rate of production per day.
d. Deplete product inventories.
e. Build a second manufacturing plan.

pucecat546

Match the following.

constant-cost industry	A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker.
increasing-cost industry	The demand facing a price-taking firm.
long-run equilibrium	A firm produces zero output but must still pay its fixed costs.
marginal revenue product	Price below which a firm shuts down in the short run.
perfect competition	All firms produce where price equals long-run marginal cost, and economic profits are zero.
perfectly elastic demand	Industry in which input prices rise as all firms in the industry expand output.
shut down	Industry in which input prices remain constant as all firms in the industry expand output.
the shut-down price	The additional revenue earned by hiring one more unit of a variable input.

viridianhare336

ECON 1000 Chapter Notes - Chapter 10: Average Variable Cost, Lagrangian Point, Diminishing Returns

ECON 1000 Full Course Notes

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