Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 7, Problem 3.5P
(a)
To determine
Cheapest technology in a high-wage country.
(b)
To determine
Cheapest technology in a low-wage country.
(c)
To determine
Changes in employment.
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The following table shows the capital and labor requirements for 10 different levels of production.
Assuming that the price of labor (PL) is $8 per unit and the price of capital (PK) is $6 per unit, compute
and graph total cost, marginal cost, and average cost for the firm.
To do this, fill in the total cost for each output level in the table below. (Enter your responses as whole
numbers.)
9
0
1
2
3
4
5
6
7
8
9
10
K
0
20
20
20
20
20
20
20
20
20
20
L
0
3
7
10
13
17
23
31
41
53
67
TC
0
Cost per unit ($)
0
1 2 3 4 5 6 7 8 9 10 11 12
Units of output
Q
✔
Would you please tell me how the economies of scale can spread out the cost of production, so that the average cost of each product is reduced?
Chapter 7 Solutions
Principles of Economics (12th Edition)
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- Think about several different types of industries or markets and the amount of time it might take to change the scale of operation and the size of the production facility for each of these examples. The long-run is a period of time long enough so that all inputs, including facility and equipment, are variable, while in the short run at least one input is fixed. Think about how much time it would take to change the scale of operation for a restaurant, for an automobile plant, for a website designing company... Does it seem that the amount of time that separates the long run from the short run is industry-specific, rather than a set period of time? Share three specific examples. Describe in detail how Diminishing Marginal Product arises from the assumption that some of a business's inputs are in fixed quantity over the period of time that is the short run. Often the convention is to assume that the business's production facility and the capital stock within it are the fixed factors of…arrow_forwardTable: Production Function for Soybeans Quantity of labor (workers) Quantity of soybeans (bushels) 1 25 45 3 60 4 70 75 Look at the table Production Function for Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which have a combined cost of $150 per day. The cost of labor is $100 per worker per day. The total cost of producing 70 bushels of soybeans is: None of these options is correct. $1,024. $550. $250. $400.arrow_forwarda) The production function q = 9K0.8LO.1 exhibits [ increasing returns to scale, constant return to scale,decreasing returns to scale, none of the above ] b) The production function q = K1.2 + 3L1.2 exhibits [ increasing returns to scale, constant return to scale,decreasing returns to scale, none of the above] a) The production function q = 9KO.8L0.1 exhibits [ Select ] %3D b) The production function q = K1.2 + 3L1.2 exhibits [Select] %3Darrow_forward
- If a factory produces 100 TV sets per year, each TV will be quite expensive to make. However, if a factory produces 20,000 TV sets each year, then it can set up an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per TV will be lower. What is this an example of? Select the correct answer below: O specialization division of labor O productivity O economies of scalearrow_forwardLooking at the following plot of a firm's production function, represented by isoquants for production levels and isocost lines for different total costs of production. Which of the following are true? 101 00 9 K, Capital per unit time Cost $38.80 2 Cost $18:40 6 L. Labour per unit time 10 Y Y 4 Y 2 a. Points a and b are each cost minimizing points for the firm at different levels of output. b. Point d will have higher output and lower total cost than point c c. Point e has less output than point b, but a higher total cost. d. The production function exhibits increasing returns to scale. e. It's clear that Point c does not correspond to a cost-minimizing bundle of inputs.arrow_forwardAn electronics plant’s production function is Q = 5LK, where Q is its output rate, L is the amount of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price of labor is $1 per unit of labor and the price of capital is $2 per unit of capital. a) What is the optimal combination of inputs the plant should use to produce 1000 units of output per period? b) Suppose that the price of labor increases to $2 per unit. What effect will this have on optimal L and K to produce Q=1000? c) Is this plant subject to decreasing returns to scale? Why or why not?arrow_forward
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