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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The following Table describes the costs of production for a local firm Quantity (0) TC APC AVC ATC MC 120 24 15 20 Note: Q quanti, PC: Variable Cost, MC Marginal Cost, AVC: Average variable cost, TC: Total Cost AFC Average fixed cost, ATC: Average total cost 54 1. Find A, B, C, 2. Does the technology reflected above exhibit decreasing returns to scale? Explain 3. Find the output level that maximizes marginal product. Explains!
2. A firm has a production function given by the following table: Units of Labor 1 2 3 4 5 K=1 3 8 12 15 17 K=2 10 15 19 22 24 K=3 16 21 25 28 30 K=4 20 25 28 30 31 (1) Suppose that K is fixed at 2. Does this production function exhibit diminishing marginal returns? (ii) Does this production function exhibit constant returns to scale for all values of K and L?
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The following is a production function. 50,000- 45,000- 40,000- Draw a graph of marginal product as a function of labor. 35,000- 30,000- 25,000- Total output (Q) 20,000- 15,000- 10,000 ng 5,000- 0+ 0 200 100 300 Units of labor (L) 400 L Q 1.) Using the line drawing tool, graph the marginal product curve from 0 to 100 units of labor. Label this line 'MP Segment 1" 2.) Using the line drawing tool, graph the marginal product curve from 100 to 300 units of labor. Label this line 'MPS Note: Carefully follow the instructions above and only draw the required objects. Does this graph exhibit diminishing returns? Explain your answer. ○ A. Yes, it does exhibit diminishing returns, because the marginal product of labor decreases. B. No, it does not exhibit diminishing returns, because the marginal product of labor is zero. ○ C. No, it does not exhibit diminishing returns, because the marginal product of labor is increasing. ○ D. Yes, it does exhibit diminishing returns, because the marginal…
Production Total Product Total Fixed Cost Total variable cost Total Cost Average fixed cost Average variable cost Average Total Cost Marginal Cost 0 0 1 25 2 45 3 60 4 70 5 85 6 105 7 135 8 180 9 240 10 315 Assume that fixed costs are $50, labor is the only variable input and its costs are reflected completely in the costs above. Complete the table Graph AFC, AVC, ATC, and MC Explain how increasing returns and decreasing returns are depicted in your graph If the labor input increased by $10 at every unit of production, what would be the effect on your graphs?
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
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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.