micro ec ch 6 written
The cost of developing a textbook is well over $1 million. once developed and ready to print the actual cost are about $5 per book. How do these facts influence the shape of the average total cost curve of producing textbooks?
The sum of the high initial or fixed cost and the low variable cost will produce an average total cost curve that starts high goes low and curves back up
What is the shape of the marginal cost curve? Why does it have this shape?
"U" shaped it has a negative slope for small quantities of output, reaches a minimum value, then has a positive slope for larger quantities.
In economics what is the distinction between the short run and the long run? Do these refer to specific periods of actual time?
Economics in short run and long run distinguished by commitment to fixed cost. Short run has fixed cost. Long run has NO fixed costs. No distinct period of time.
Explain the relationship between MC curve and ATC and AVC. And between ATC and AVC
MC curves rises after brief decline and intersects with both ATC and AVC
Explain the factors that cause a firms short run average total cost to decline initially but eventually to increase as the output rises. what about long run average costs
Initial AFC is higher than AVC that leads ATC to decline at first. later AVC is higher than AFC leading ATC to increase. In the long run average cost is the best short run cost available depending on the quantity of output planned
What role does opportunity costs play in all supply decisions
It takes implicit cost into account(land labor capital and entrepreneurship)
Where does the marginal cost curve intersect the average total cost and average variable cost curve? Explain why the relationship between MC and AC is how you have described it
MC intersects ATC and AVC at their lowest point. relationship MC & AC= as MC rises AC rises giving it U shape. ATC increases when MC exceeds AC
Does total output fall when diminishing returns occurs? explain
No! diminishing return is when out put is going up slower than costs. Total out put will fall when marginal physical product becomes negative
What is the envelope relationship between short run cost curves and long run cost curves
Short run cost curve will be U shaped showing decreasing marginal cost and eventually increasing marginal cost. Long run shows summary of best short run possibilities using current technology
When there are economies of scale a firm can simply increase production rates in the short run and unit costs will decline.. true or false
TRUE.a large firm can increase production rates in short run through specialization
State the law of marginal productivity. is it a short run or long run law explain
Too many cooks in the kitchen. it exist in the short run and long run in relation to its long run average cost curve
What are some of the problems of using costs analysis in the real world
When a business does not calculate the total cost of producing a product correctly. They do not identify all resources used in production
What is the difference between diminishing marginal productivity and diseconomies of scale
diminishing marginal productivity occurs when each additional unit of input produces less out put. diseconomies of scale occur in long run when firm has rising per unit cost due to inefficiencies
