Question 1

"Assuming the long-run average cost curve is U shaped, a firm will always seek to operate at the lowest point on the long-run average cost curve.

Accepted Answer

The optimal point in the long run depends on the demand for the firm's product. If demand is small, the firm will prefer a relatively small plant and will operate to the left of minimum LRAC. A firm anticipating a large demand may find it optimal to produce beyond minimum LRAC. Later, there will be a tendency to operate at minimum LRAC when a firm faces competition, but there is no such discipline on the firm in this chapter.

Question 2

Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns. Graph TC on a separate graph, AC and MC on a second graph.

Accepted Answer

The answer of Graph typical total, average, and marginal cost...

Question 3

Explain briefly the following concepts: 
a.Increasing returns to scale 
b.Decreasing returns to scale 
c.Constant returns to scale

Accepted Answer

The answer of Explain briefly the following concepts: 
a.Increasing returns...

Question 4

If the MRP per dollar is greater for labor than that for tools, a producer should spend more money on labor than originally planned and less on tools. How long can he continue this switch in spending? Why?

Accepted Answer

The answer of If the MRP per dollar is greater...

Question 5

Draw a long-run average cost curve that first exhibits increasing returns to scale (economies of scale), then constant returns to scale, and finally decreasing returns to scale (diseconomies of scale). Label each region.

Accepted Answer

The answer of Draw a long-run average cost curve that...

Question 6

Give a short concise definition for the following terms and explain their relationship to the study of economics. 
a. Marginal physical product 
b.Marginal revenue product 
c. Law of diminishing returns 
d. Economies of scale

Accepted Answer

The answer of Give a short concise definition for the...

Question 7

Labor is available at a wage of $10. The last worker hired by Cal's Corn Farm added 20 ears of corn, which Cal has priced at four ears for $1. What advice would you give Cal?

Accepted Answer

The answer of Labor is available at a wage of...

Question 8

Draw a graph using production indifference curves and budget lines showing a firm initially minimizing cost with its inputs of A and B. Then illustrate a new optimal combination of inputs when the prices of the inputs change.

Accepted Answer

The answer of Draw a graph using production indifference curves...

Question 9

"Optimal input curve analysis is useless. Since firms never know the demand for their product with certainty, they will rarely operate at the optimal input combination." Agree or disagree?

Accepted Answer

The answer of "Optimal input curve analysis is useless. Since...

Question 10

Are returns to a single input and returns to scale one and the same? Explain.

Accepted Answer

The answer of Are returns to a single input and...

Question 11

How long is the long run?

Accepted Answer

The answer of How long is the long run?...

Question 12

The table below gives data on output for a firm in the short run. The firm is able to hire labor and its TPP is given. Compute the APP, MPP, and MRP for labor if the price of the good is fixed at $12 per unit.

Accepted Answer

The answer of The table below gives data on output...

Question 13

Explain why the average cost curve for the long run differs from that for the short run.

Accepted Answer

The answer of Explain why the average cost curve for...

Question 14

Peter Piper picks a peck of pickled peppers using 10 units of labor and two pepper-picking machines. The last worker hired picked 100 peppers, and the last machine added 1,000 peppers. If labor can be hired at $5 a pepper picker and machines cost $5,000, what advice do you have for Peter Piper?

Accepted Answer

The answer of Peter Piper picks a peck of pickled...

Question 15

The United Auto Workers union is largely responsible for the historically high pay of American auto workers by negotiating pay raises above those obtained by workers in other industries. In addition to increasing the pay of auto workers, what other long-run effect would this high pay have on the use of auto workers?

Accepted Answer

The answer of The United Auto Workers union is largely...

Question 16

Aunt Rose owned a dress shop on 81st Street and Broadway in Manhattan, selling limited-edition dresses to wealthy clients. One day, her landlord tripled her rent. What effect would this have on her dress price in the short run, assuming she is following the rules of profit maximization?

Accepted Answer

The answer of Aunt Rose owned a dress shop on...

Question 17

What is the shape of average cost curve? Provide the reason for that particular shape.

Accepted Answer

The answer of What is the shape of average cost...

Question 18

Complete the table below by computing the missing numbers from those that are given.

Accepted Answer

The answer of Complete the table below by computing the...

Question 19

Explain why the long-run average cost is typically U shaped.

Accepted Answer

The answer of Explain why the long-run average cost is...

Question 20

A.B. Denson Company had been employing 6 workers and 8 tons of raw materials, using 2,000 square feet of plant space. The firm increased its work force to 12 workers utilizing 16 tons of raw materials in a plant space increased to 4,000 square feet. Total number of units of output increased from 78 to 160. What kind of returns to scale is the firm experiencing? Defend your answer.

Accepted Answer

The answer of A.B. Denson Company had been employing 6...

Quiz 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis