ECON 1010 Chapter Notes - Chapter 11: Sunk Costs, Diminishing Returns, Marginal Product

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coffeemarten199

19 Mar 2016

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Short run: the short fun is a ime frame in which the quanity of at least one factor of producion is ixed. For the majority of irm"s capital, land and entrepreneurship are ixed factors of producion, which we call plant and labour is the variable factor of producion. Long run: the long run is a ime frame in which the quanity of all factors of producion can be varied. That is, the long run is a period in which the irm can change its plant. Sunk cost past cost of buying a new plant, a plant that has no resale value. The sunk cost is the irms current decisions, only short run changes in labour and long run cost of changings in plants are important. Total product: is the maximum output that a given quanity of labour can produce. Maximum atainable output with ixed quanity of capital as the quanity of labour varies.

Related Questions

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

What is the difference between "diminishing marginal returns" and "diseconomies of scale"?

(i) Diminishing marginal returns that apply only in the short run, when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average cost increases.

(ii) Diminishing marginal returns which apply only in the short run, when at least one factor is fixed, explains why average variable cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average total cost increases.

(iii) Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale apply in the long run when all factors are variable.

(iv) Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale apply in the long run when all factors are variable.

cerisehare907

A basic distinction between the long run and the short run is that:

A) If a firm produces no output in the long-run, it still incurs a loss.

B) The opportunity costs of production are lower in the short-run than in the long-run.

C) In the long-run some inputs are fixed, while in the short-run all inputs are variable.

D) In the short-run, complete adjustment of all inputs is impossible, while in the long-run all inputs can be adjusted.

bronzellama426

ECON 1010 Chapter Notes - Chapter 11: Sunk Costs, Diminishing Returns, Marginal Product

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