ECON Ch. 11 HW
How can marginal cost be expressed mathematically? Marginal cost (MC) can be expressed as
MC=ΔTCΔQ, where TC is total cost and Q is output.
What is technology? Technology is
The processes a firm uses to turn inputs into outputs of goods and services.
Mortley Inc., a small firm that manufactures good A, is targeting a new segment of the market. During a meeting, the managers analyze the following production data provided by the operations department. The table given below shows the total output produced by the 12 workers at the plant. Assuming that labor is the only variable input, which of the following can most reasonably be inferred from the information given in the table above?
The firm's marginal cost is at its minimum when it hires the seventh worker.
Does the production of flowers experience the effects of the law of diminishing returns? The effects of the law of diminishing returns
are experienced when the third worker is hired.
- A firm uses capital and labor to produce output. The isoquant graph to the right illustrates the firm's technology with isoquant curves. A couple of input combinations are also indicated in the figure. Suppose the firm is currently using a combination of inputs indicated by point C. Which of the indicated input bundles would produce the same amount of output (as input combination C)? - Which of the indicated input bundles would produce more output?
- Input combination B would produce the same amount of output because it is on the same isoquant. - Input combination A would produce more output because it is on a higher isoquant.
- How can marginal cost be expressed mathematically? Marginal cost (MC) can be expressed as
- MC=ΔTCΔQ, where TC is total cost and Q is output.
- Refer to the to graph on the right. For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. What is this output range? - When marginal cost is less than average total cost, average total cost must be
- The output range greater than about 525 pizzas per day - Decreasing
An example of technological change is
A. being able to produce the same output using fewer inputs. B. being able to produce more output using the same inputs. C. a decline in the quantity of output that can be produced from a given quantity of inputs.
Suppose a company mows yards with workers and lawn-mowing equipment. The firm's isocost line will show
All the combinations of workers and equipment that have the same total cost.
What is the difference in the short run and the long run? In the short run,
At least one of the firm's inputs is fixed, while in the long run, the firm is able to vary all its inputs, adopt new technology, and change the size of its physical plant.
Your company incurs a cost for factory rent, which, in the short run, is fixed. What happens to this cost in the long run? In the long run, the cost of factory rent
Becomes a variable cost.
Goodlife Corp. manufactures good X for both domestic and international consumers. The management is planning to increase production at its existing facilities to meet the increasing demand from its international customers. Lauren Whittle, the operations head, was asked to submit a report to the board of directors regarding the daily cost of production. The table given below lists the changes in the total cost, when production is increased from zero to ten units in a day. Suppose labor is the only variable input used in production at this facility. Which of the following can Lauren infer about labor productivity from the information given in the table?
Both average and marginal product of labor rises when the firm produces the first five units of the good.
The figure to the right illustrates the short-run cost curves for a company that produces cell phones. Identify the average total cost curve (ATC), the average variable cost curve (AVC), the average fixed cost curve (AFC), and the marginal cost curve (MC) in the figure.
C3C2C1C4
- The figure to the right illustrates the long-run average cost curve for a company that makes motors. Suppose the company produces 6 thousand motors per month. Is it experiencing economies of scale, diseconomies of scale, or constant returns to scale? If the company produces 6 thousand motors, then it experiences - At what level of output does the firm experience the minimum efficient scale? The minimum efficient scale occurs when the firm produces nothing _____ thousand motors.
Diseconomies of scale. - 5
Economists assume that firms search for the cost-minimizing combination of inputs that will allow them to produce a given level of output. On what two factors does the cost-minimizing combination of inputs depend? The cost-minimizing combination of inputs depends on
Technology and input prices
What is the production function? The production function is the relationship between
The inputs employed by a firm and the maximum output it can produce with those inputs.
Consider the production of hotdogs. Given the average total cost of producing hotdogs illustrated in the graph to the right, which of the following is true of the marginal cost of producing hotdogs?
The marginal cost of producing up to 400 hotdogs is less than the average total cost, but the marginal cost of producing more than 400 hotdogs is greater than the average total cost. The marginal cost of production is exactly equal to the average total cost at 400 hotdogs.
Which of the following is true of the relationship between the average product of labor and the marginal product of labor?
Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing.
Suppose that last semester your semester GPA was 3.90 and your resulting cumulative GPA was 2.67. Next, suppose that this semester your semester GPA will be 3.10. If so, then your cumulative GPA
Will increase because your "marginal" GPA will be above your cumulative GPA.
The marginal cost of production shows the change in a firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost curve? Graphically, the marginal cost curve is
a U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.
Firms experience economies of scale for several reasons. What is one such reason? A firm might experience economies of scale because
As a firm expands, it may be able to borrow money more inexpensively.
A firm produces output using capital and labor. The firm's marginal product of labor (MPL) is 50 and its marginal product of capital (MPK) is 10. Suppose the wage per unit of labor (w) is $6.00 and the cost per unit of capital (r) is $3.00. Is the firm minimizing the cost of production? What should the firm do, if anything, to produce the same level of output at lower cost? The firm
is not minimizing the cost of production and should use more labor and less capital.
