Q5. What distinguishes a firm’s short-run period from its long-run period? Q7. What is the difference...

Q5. What distinguishes a firm’s short-run period from its long-run period?

Q7. What is the difference between fixed cost and variable cost? Does each type of cost affect short-run marginal cost? If yes, explain how each affects marginal cost. If no, explain why each does or does not affect marginal cost.

Q8. Explain why the marginal cost of production must increase if the marginal product of the variable resource is decreasing.

Q10. Identify each of the curves in the following graph.

Q11. Explain why the marginal cost curve must intersect the average total cost curve and the average variable cost curve at their minimum points. Why do the average total cost and average variable cost curves get closer to one another as output increase?

Q12. In Exhibit 7 in this chapter, the output level where average total cost is at a minimum is greater than the output level where average variable cost is at a minimum. Why?

Q14. Explain the shape of the long-run average cost curve. What does “minimum efficient scale” mea

P19. Complete the following table, where L is units of labor Q is units of output, and MP is the marginal product of labor.

At what level of labor input do the marginal returns to labor begin to diminish?
What is the average variable cost when Q = 24?
What is this firm’s fixed cost?
What is the wage rate per day?

P20. Assume that labor and capital are the only inputs used by a firm. Capital is fixed at 5 units, which cost $100 each. Workers can be hired for $200 each. Complete the following table to show average variable cost (AVC), average total cost (ATC), and marginal cost (MC).

P21. Suppose the firm has only three possible scales of production as shown below:

Which scale of production is most efficient when Q= 65?
Which scale of production is most efficient when Q =75?
Trace out the long-run average cost curve on the diagram.

Chapter Appendix ‘Production and Cost in the Firm’ - Extra Credit

P1. Suppose that a firm’s cost per unit of labor is $100 per day and its cost per unit of capital is $400 per day.

Draw the isocost line for a total cost per day of $2,000. Label the axis.
If the firm is producing efficiently, what is the marginal rate of technical substitution between labor and capital?
Demonstrate your answer to part (b) using isocost lines and isoquant curves.

Expert Solution

Rahul Sunny answered 7 months ago

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