1 2. Short-run versus long-run costs and expenditur Aa Aa The following isoquants depict the technologically efficient bundles of labor and capital for producing 100 and 150 units of output (labeled IQ [Q=100], and IQ [Q= 150], respectively). Suppose the firm is initially using the cost-minimizing bundle of labor and capital for producing 100 units of output, represented by point A. CAPITAL 50 45 40 35 30 25 20 15 10 JQ (0=1501 5 0 (0-100) 0 10 20 30 40 50 60 70 80 90 100 LABOR Imagine that the firm wants to compare the short-run expenditures and long-run costs associated with producing 100 units with the costs associated with other levels of production. Given that the firm is currently committed to 10 units of capital, complete the following table by entering the total amount the firm would have to spend on capital and abor at each level of production in both the short run and the long run if the wage rate (w) is $10 and rental rate of capital (r) is $20. Short-Run Expenditures ($) Quantity Produced Long-Run Costs ($) (Capital is (Capital is 0 100 150

1 2. Short-run versus long-run costs and expenditur Aa Aa The following isoquants depict the technologically efficient bundles of labor and capital for producing 100 and 150 units of output (labeled IQ [Q=100], and IQ [Q= 150], respectively). Suppose the firm is initially using the cost-minimizing bundle of labor and capital for producing 100 units of output, represented by point A. CAPITAL 50 45 40 35 30 25 20 15 10 JQ (0=1501 5 0 (0-100) 0 10 20 30 40 50 60 70 80 90 100 LABOR Imagine that the firm wants to compare the short-run expenditures and long-run costs associated with producing 100 units with the costs associated with other levels of production. Given that the firm is currently committed to 10 units of capital, complete the following table by entering the total amount the firm would have to spend on capital and abor at each level of production in both the short run and the long run if the wage rate (w) is $10 and rental rate of capital (r) is $20. Short-Run Expenditures ($) Quantity Produced Long-Run Costs ($) (Capital is (Capital is 0 100 150

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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QUESTION 6 At a total cost of $3,100, a company can produce 4 scooters. It has fixed costs of $1,000. If it produces 5 scooters, the costs of production total $3,800. Which of the following statements is true? O Variable costs of producing 4 scooters total $3096. O The average (or per unit) cost of producing 5 scooters is $800 per scooter The total cost curve for this firm is downward sloping Fixed costs will be higher when it produces 5 scooters The marginal cost of producing the fifth scooter is $700
. With the aid of a clearly labelled diagram illustrate;i.The least cost criterion for cost minimization ii.At what point does the least cost combination of inputs occur? iii.What are the optimal solutions to cost minimization?
36) 36) Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers? A) $2.00 B) $2.40 C) $4.40 D) $6.80 Page Ref: 369-370
The law of diminishing marginal returns states: Select one: a. As a firm uses more of a variable factor of production, total product (TP) eventually decreases. b. As the size of a plant increases, marginal product (MP) eventually decreases. c. As a firm uses more of a variable factor of production, its average cost (AC) eventually decreases. d. As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the MP of the variable factor eventually decreases.
3. Frisbees are produced according to the production function q = 2K+L where q = output of frisbees per hour, K =capital input per hour, L =labor input per hour. a) If K = 10, how much L is needed to produce 100 frisbees per hour? b) If K = 25, how much L is needed to produce 100 frisbees per hour? c) Graph the q = 100 isoquant. Indicate the points on that isoquant defined in part a and part b. What is the RTS along this isoquant? Explain why the RTS is the same at every point on the isoquant. d) Graph the q = 50 and q = 200 isoquants for this production function also. Describe the shape of the entire isoquant map. e) Suppose technical progress resulted in the production function for frisbees becoming q = 3K+ 1.5L. Answer part a through part d for this new production function and discuss how it compares to the previous case.