1 Microeconomics Modified by: Yun Wang Florida International University Spring Chapter 11 Technology, Production, and Costs
2 Chapter Outline 11.1 Technology: An Economic Definition 11.2 The Short Run and the Long Run in Economics 11.3 The Marginal Product of Labor and the Average Product of Labor 11.4 The Relationship between Short-Run Production and Short-Run Cost 11.5 Graphing Cost Curves 11.6 Costs in the Long Run Appendix Using Isoquants and Isocost Lines to Understand Production and Cost
3 11.1 Technology: An Economic Definition Define technology and give examples of technological change. The basic activity of a firm is to use inputs, for example Workers, Machines, and Natural resources to produce outputs of goods and services. We call the process by which a firm does this a technology; if a firm improves its ability to turn inputs into outputs, we refer to this as a positive technological change. Technology: The processes a firm uses to turn inputs into outputs of goods and services. Technological change: A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
4 11.2 The Short Run and the Long Run in Economics Distinguish between the economic short run and the economic long run. Economists refer to the short run as a period of time during which at least one of a firm s inputs is fixed. Example: A firm might have a long-term lease on a factory that is too costly to get out of. In the long run, the firm can vary all of its inputs, adopt new technology, and increase or decrease the size of its physical plant. How long is the long run? It varies from firm to firm. Just think of it as a long enough period of time that anything can be changed.
5 Fixed, Variable, and Total Costs The division of time into the short and long run reveals two types of costs: Variable costs are costs that change as output changes, while Fixed costs are costs that remain constant as output changes. In the long run, all of a firm s costs are variable, since the long run is a sufficiently long time to alter the level of any input. Total cost is the cost of all the inputs a firm uses in production: Total cost = Fixed cost + Variable cost TC = FC + VC
6 Explicit and Implicit Costs Recall that economists like to consider all of the opportunity costs of an activity; both the explicit costs and the implicit costs. Explicit cost: A cost that involves spending money Implicit cost: A nonmonetary opportunity cost The explicit costs of running a firm are relatively easy to identify: just look at what the firm spends money on. The implicit costs are a little harder; finding them involves identifying the resources used in the firm that could have been used for another beneficial purpose. Example: If you own your own firm, you probably spend time working on the firm s activities. Even if you don t pay yourself explicitly for that time, it is still an opportunity cost.
7 Table 11.1 Jill Johnson s Costs Per Year (1 of 2) Jill s Costs Amount Pizza dough, tomato sauce, and other ingredients $20,000 Wages 48,000 Interest payments on loan to buy pizza ovens 10,000 Electricity 6,000 Lease payment for store 24,000 Forgone salary 30,000 Forgone interest 3,000 Economic depreciation 10,000 Total $151,000 Suppose Jill Johnson quits her $30,000 a year job to start a pizza store. She uses $50,000 of her savings to buy equipment furniture, etc. and takes out a loan as well. The items in red are explicit costs. The items in blue are implicit costs: her foregone salary, the interest the money could have earned and economic depreciation (decrease in resale value) on the capital items Jill bought.
8 Production at Jill Johnson s Restaurant Jill Johnson s restaurant turns its inputs (pizza ovens, ingredients, labor, electricity, etc.) into pizzas for sale. To make analysis simple, let s consider only two inputs: The pizza ovens, and Workers The pizza ovens will be a fixed cost; we will assume Jill cannot change (in the short run) the number of ovens she has. The workers will be a variable cost; we will assume Jill can easily change the number of workers she hires.
9 Table 11.2 Short-Run Production and Cost at Jill Johnson s Restaurant (1 of 3) Quantity of Workers Quantity of Pizza Ovens Quantity of Pizzas per Week Cost of Pizza Ovens (Fixed Cost) Cost of Workers (Variable Cost) Total Cost of Pizzas per Week Cost per Pizza (Average Total Cost) $800 $0 $ ,450 $ ,300 2, ,950 2, ,600 3, ,250 4, ,900 4, Jill Johnson s restaurant has a particular technology by which it transforms workers and pizza ovens into pizzas. With more workers, Jill can produce more pizzas. This is the firm s production function: the relationship between the inputs employed and the maximum output from those inputs.
10 Table 11.2 Short-Run Production and Cost at Jill Johnson s Restaurant (2 of 3) Quantity of Workers Quantity of Pizza Ovens Quantity of Pizzas per Week Cost of Pizza Ovens (Fixed Cost) Cost of Workers (Variable Cost) Total Cost of Pizzas per Week Cost per Pizza (Average Total Cost) $800 $0 $ ,450 $ ,300 2, ,950 2, ,600 3, ,250 4, ,900 4, Each pizza oven costs $400 per week, and each worker costs $650 per week. So the firm has $800 in fixed costs, and its costs go up $650 for each worker employed.
11 Figure 11.1 Graphing Total Cost and Average Total Cost at Jill Johnson s Restaurant (1 of 2) Using the information from the table, we can graph the costs for Jill Johnson s restaurant. Notice that cost is not zero when quantity is zero, because of the fixed cost of the pizza ovens. Naturally, costs increase as Jill wants to make more pizzas.
12 Table 11.2 Short-Run Production and Cost at Jill Johnson s Restaurant (3 of 3) Quantity of Workers Quantity of Pizza Ovens Quantity of Pizzas per Week Cost of Pizza Ovens (Fixed Cost) Cost of Workers (Variable Cost) Total Cost of Pizzas per Week Cost per Pizza (Average Total Cost) $800 $0 $ ,450 $ ,300 2, ,950 2, ,600 3, ,250 4, ,900 4, If we divide the total cost of the pizzas by the number of pizzas, we get the average total cost of the pizzas. For low levels of production, the average cost falls as the number of pizzas rises; at higher levels, the average cost rises as the number of pizzas rises.
13 Figure 11.1 Graphing Total Cost and Average Total Cost at Jill Johnson s Restaurant (2 of 2) The falling-then-rising nature of average total costs results in a U-shaped average total cost curve. Our next task is to examine why we get this shape for average total costs.
14 11.3 The Marginal Product of Labor and the Average Product of Labor Understand the relationship between the marginal product of labor and the average product of labor. Suppose Jill Johnson hires just one worker; what does that worker have to do? Take orders Make and cook the pizzas Take pizzas to the tables Run the cash register, etc. By hiring another worker, these tasks could be divided up, allowing for some specialization to take place, resulting from the division of labor. Two workers can probably produce more output per worker than one worker can alone.
15 Table 11.3 The Marginal Product of Labor at Jill Johnson s Restaurant (1 of 2) Quantity of Workers Quantity of Pizza Ovens Quantity of Pizzas Marginal Product of Labor Let s examine what happens as Jill Johnson hires more workers. To think about this, consider the marginal product of labor: the additional output a firm produces as a result of hiring one more worker. The first worker increases output by 200 pizzas; the second increases output by 250.
16 Table 11.3 The Marginal Product of Labor at Jill Johnson s Restaurant (2 of 2) Additional workers add to the potential output but not by as much. Eventually they start getting in each other s way, etc., because there is only a fixed number of pizza ovens, cash registers, etc. Law of diminishing returns: At some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
17 Figure 11.2 Total Output and the Marginal Product of Labor Graphing the output and marginal product against the number of workers allows us to see the law of diminishing returns more clearly. The output curve flattening out, and the decreasing marginal product curve, both illustrate the law of diminishing returns.
18 Average Product of Labor Another useful indication of output is the average product of labor, calculated as the total output produced by a firm divided by the quantity of workers. With 3 workers, the restaurant can produce 550 pizzas, giving an average product of labor of: A useful way to think about this is that the average product of labor is the average of the marginal products of labor. The first three workers give 200, 250, and 100 additional pizzas respectively:
19 Average and Marginal Product of Labor With only two workers, the average product of labor was: So the third worker made the average product of labor go down. This happened because the third worker produced less (marginal) output than the average of the previous workers. If the next worker produces more (marginal) output than the average, then the average product will rise instead. The next slide illustrates this idea using college grade point averages (GPAs).
20 Figure 11.3 Marginal and Average GPAs Paul s semester GPA starts off poorly, rises, then eventually falls in his senior year. His cumulative GPA follows his semester GPA upward, as long as the semester GPA is higher than the cumulative GPA. When his semester GPA dips down below the cumulative GPA, the cumulative GPA starts to head down also.
21 11.4 The Relationship between Short-Run Production and Short-Run Cost Explain and illustrate the relationship between marginal cost and average total cost. We have already seen the average total cost: total cost divided by output. We can also define the marginal cost as the change in a firm s total cost from producing one more unit of a good or service: MC TC Q Sometimes Q 1, so we can ignore the bottom line, but don t get in the habit of doing that, or you ll make mistakes when quantity changes by more than 1 unit.
22 Figure 11.4 Jill Johnson s Marginal Cost and Average Cost of Producing Pizzas We can visualize the average and marginal costs of production with a graph. The first two workers increase average production and cause cost per unit to fall; the next four workers are less productive, resulting in high marginal costs of production. Quantity of Workers Marginal Product of Labor Total Cost of Pizzas Marginal Cost of Pizzas Average Total Cost of Pizzas Quantity of Pizzas 0 0 $ ,450 $3.25 $ , , , , , Since the average cost of production follows the marginal cost down and then up, this generates a U-shaped average cost curve.
23 11.5 Graphing Cost Curves Graph average total cost, average variable cost, average fixed cost, and marginal cost. We know that total costs can be divided into fixed and variable costs: TC FC VC Dividing both sides by output (Q) gives a useful relationship: TC FC VC Q Q Q The first quantity is average total cost. The second is average fixed cost: fixed cost divided by the quantity of output produced. The third is average variable cost: variable cost divided by the quantity of output produced. So, ATC AFC AVC
24 Figure 11.5 Costs at Jill Johnson s Restaurant (1 of 2) Quantity of workers Quantity of ovens Quantity of Pizzas Cost of Ovens (fixed cost) Cost of workers (variable cost) Total Cost of Pizzas ATC AFC AVC MC $800 $0 $ ,450 $7.25 $4.00 $3.25 $ ,300 2, ,950 2, ,600 3, ,250 4, ,250 4, ,900 4, Observe that: In each row, ATC = AFC + AVC. When MC is above ATC, ATC is falling. When MC is above ATC, ATC is rising. The same is true for MC and AVC.
25 Figure 11.5 Costs at Jill Johnson s Restaurant (2 of 2) This results in both ATC and AVC having their U-shaped curves. The MC curve cuts through each at its minimum point, since both ATC and AVC follow the MC curve. Also notice that the vertical sum of the AVC and AFC curves is the ATC curve. And because AFC gets smaller, the ATC and AVC curves converge.
26 11.6 Costs in the Long Run Understand how firms use the long-run average cost curve in their planning. Recall that the long run is a sufficiently long period of time that all costs are variable. So In the long run, there is no distinction between fixed and variable costs. A long-run average cost curve shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.
27 Figure 11.6 The Relationship between Short-Run Average Cost and Long-Run Average Cost (1 of 3) At low quantities, a firm might experience economies of scale: the firm s long-run average costs falling as it increases the quantity of output it produces. Here, a small car factory can produce at a lower average cost than a large one, for small quantities. For more output, a larger factory is more efficient.
28 Figure 11.6 The Relationship between Short-Run Average Cost and Long-Run Average Cost (2 of 3) The lowest level of output at which all economies of scale are exhausted is known as the minimum efficient scale. At some point, growing larger does not allow more economies of scale. The firm experiences constant returns to scale: its longrun average cost remains unchanged as it increases output.
29 Figure 11.6 The Relationship between Short-Run Average Cost and Long-Run Average Cost (3 of 3) Eventually, firms might get so large that they experience diseconomies of scale: a situation in which a firm s long-run average costs rise as the firm increases output. This might happen because the firm gets to large to manage effectively, or because the firm has to employ workers or other factors of production that are less well suited to production.
30 Long-Run Average Cost Curves for Automobile Factories Why might a car company experience economies of scale? Production might increase at a greater than proportional rate as inputs increase. Having more workers can allow specialization. Large firms may be able to purchase inputs at lower prices. But economies of scale will not last forever. Eventually managers may have difficulty coordinating huge operations. Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years. - President of Toyota s Georgetown plant
31 Table 11.4 A Summary of Definitions of Cost Term Total cost Definition The cost of all the inputs used by a firm, or fixed cost plus variable cost Symbols and Equations TC Fixed costs Costs that remain constant as a firm s level of output changes FC Variable costs Costs that change as a firm s level of output changes VC Marginal cost Average total cost An increase in total cost resulting from producing another unit of output Total cost divided by the quantity of output produced TC MC Q TC ATC Q Average fixed cost Fixed cost divided by the quantity of output produced AFC FC Q Average variable cost Variable cost divided by the quantity of output produced VC AVC Q Implicit cost A nonmonetary opportunity cost Explicit cost A cost that involves spending money
32 Appendix: Using Isoquants and Isocost Lines to Understand Production and Cost Use isoquants and isocost lines to understand production and cost. Suppose a firm has determined it wants to produce a particular level of output. What determines the cost of that output? 1. Technology In what ways can inputs be combined to produce output? 2. Input prices What is the cost of each input compared with the other? That is, what is the relative price of each input?
33 Figure 11A.1 Isoquants (1 of 3) If a firm s technology allows one input to be substituted for the other in order to maintain the same level of production, then many combinations of inputs may produce the same level of output. The pizza restaurant might be able to produce 5,000 pizzas with either 6 workers and 3 ovens; or 10 workers and 2 ovens. An isoquant is a curve showing all combinations of two inputs, such as capital and labor, that will produce the same level of output.
34 Figure 11A.1 Isoquants (2 of 3) More inputs would allow a higher level of production; with 12 workers and 4 ovens, the restaurant could produce 10,000 pizzas. A new isoquant describes all combinations of inputs that could produce 10,000 pizzas. Greater production would require more inputs.
35 Figure 11A.1 Isoquants (3 of 3) The slope of an isoquant describes how many units of capital are required to compensate for a unit of labor, keeping production constant. This is the marginal rate of technical substitution. Between A and B, 1 oven can compensate for 4 workers; the 1 MRTS 4 Additional workers are poorer and poorer substitutes for capital, due to diminishing returns; so the MRTS gets smaller as we move along the isoquant, giving a convex shape.
36 Figure 11A.2 An Isocost Line For a given cost, various combinations of inputs can be purchased. The table shows combinations of ovens and workers that could be produced with $6,000, if ovens cost $1,000 and workers cost $500. Combinations of Workers and Ovens with a Total Cost of $6,00 Point Ovens Workers Total Cost A 6 0 (6 $1,000) + (0 $500)= $6,000 B 5 2 (5 $1,000) + (2 $500)= $6,000 C 4 4 (4 $1,000) + (4 $500)= $6,000 D 3 6 (3 $1,000) + (6 $500)= $6,000 E 2 8 (2 $1,000) + ( 8 $500) = $6,000 F 1 10 (1 $1,000) +( 10 $500) = $6,000 G 0 12 (0 $1,000) + (12 $500) = $6,000 Isocost line: All the combinations of two inputs, such as capital and labor, that have the same total cost.
37 Figure 11A.3 The Position of the Isocost Line With more money, more inputs can be purchased. The slope of the isocost line remains constant, because it is always equal to the price of the input on the horizontal axis divided by the price of the input on the vertical axis, multiplied by 1. The slope indicates the rate at which prices allow one input to be traded for the other: here, 1 oven costs the same as 2 workers: 1 slope 2
38 Figure 11A.4 Choosing Capital and Labor to Minimize Total Cost Suppose the restaurant wants to produce 5,000 pizzas. Point B costs only $3,000 but doesn t produce 5000 pizzas. Points A, C, and D all produce 5,000 pizzas. Point A is the cheapest way to produce 5,000 pizzas; the isocost line going through it is the lowest. Observe that at this point, the slope of the isoquant and isocost line are equal.
39 Figure 11A.5 Changing Input Prices Affects the Cost-Minimizing Input Choice If prices change, so does the cost-minimizing combination of capital and labor. Suppose we open a pizza franchise in China, where ovens are more expensive ($1,500) and workers are cheaper ($300). The isocost lines are now flatter. To obtain the same level of production, we would substitute toward the input that is now relatively cheaper: workers.
40 Another Look at Cost Minimization We observed that at the minimum cost level of production, the slopes of the isocost line and the isoquant were equal. Generally, writing labor as L and capital as K, we have: PL Slope of isoquant MRTS Slope of isocost line P PL So at the cost-minimizing level of production, MRTS. P The MRTS tells us the rate at which a firm is able to substitute labor for capital, given existing technology. The slope of the isocost line tells us the rate at which a firm is able to substitute labor for capital, given current input prices. These are equal at the cost-minimizing level of production, but there is no reason they should be equal elsewhere. K K
41 Moving Along an Isoquant (1 of 2) Suppose we move between two points on an isoquant, increasing labor and decreasing the capital used. When we increase labor, we increase production by the number of workers we add times their marginal production: Change in quantity of workers MPL We can interpret the reduction in output from reducing capital in the same way: it is equal to the amount of capital we remove, times the marginal production of that capital: Change in quantity of capital MP K
42 Moving Along an Isoquant (2 of 2) Since we are moving along an isoquant, production stays constant So the decrease in output from using less capital must exactly equal the increase in output from increasing labor: Change in quantity of capital MP change in q uantity of workers K MP L Rearranging this equation gives: Change in quantity of capital Change in the quantity of workers MP MP L K The left hand side is the slope of the isoquant: the MRTS. So: MP MRTS MP L K
43 Optimality Condition for a Firm The slope of the isocost line is the wage rate (w) divided by the rental price of capital (r). Earlier in the appendix, we showed that at the cost-minimizing point, w MRTS r So now we know that at the cost-minimizing point: Rearranging gives us: MP MP L K w r MP w L MP r K
44 Interpreting the Firm s Optimality Condition MP w L MP At the cost-minimizing input combination, the marginal output of the last dollar spent on labor should be equal to the marginal output of the last dollar spent on capital. We could use this idea to determine whether a firm was producing efficiently or not: if an extra dollar spent on capital produced more (less) output than an extra dollar spent on labor, then the firm is not minimizing costs; it could: increase (decrease) capital, and decrease (increase) labor, maintaining the same level of output and lowering cost. r K
45 Figure 11A.6 The Expansion Path (1 of 2) A bookcase manufacturing firm produces 75 bookcases a day, using 60 workers and 15 machines. In the short run, if the firm wants to expand production to 100 bookcases, it must do so by employing more workers only; the number of machines is fixed. Notice that there is are lower-cost combination of inputs (like point C) that would produce 100 bookcases; in the long run, the firm will switch to one of those.
46 Figure 11A.6 The Expansion Path (2 of 2) Point C is a combination on the long-run expansion path for the firm: a curve that shows the firm s cost-minimizing combination of inputs for every level of output. We can tell because the isocost line and isoquant are tangent at point C. Point A minimizes costs for a lower quantity (50). The expansion path is the set of all cost-minimizing bundles, given a particular set of input prices.
Costs Costs: Introduction Managerial Problem Technology choice at home versus abroad: In western countries, firms use relatively capital-intensive technology. Will that same technology be cost minimizing
The Costs of Production PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 What are Costs? Total revenue = amount a firm receives for the sale of its output Total cost = market
The s of Production Chapter 13 Copyright 2001 by Harcourt, Inc. The s of Production The Law of Supply: Firms are willing to produce and sell a greater quantity of a good when the price of the good is high.
Notes on Chapter 10 OUTPUT AND COSTS PRODUCTION TIMEFRAME There are many decisions made by the firm. Some decisions are major decisions that are hard to reverse without a big loss while other decisions
CHAPTER 12 Production and Cost Analysis I Production is not the application of tools to materials, but logic to work. Peter Drucker McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All
Chapter 13. The Costs of Production The Market Forces of Supply and Demand Supply and demand are the two words that economists use most often. Supply and demand are the forces that make market economies
MICROECONOMICS II - REVIEW QUESTIONS I. What is a production function? How does a long-run production function differ from a short-run production function? A production function represents how inputs are
Semester-I Course: 01 (Introductory Microeconomics) Unit IV - The Firm and Perfect Market Structure Lesson: Short-Run Costs and Output Decisions Lesson Developer: Jasmin Jawaharlal Nehru University Institute
Unit 5. Producer theory: revenues and costs Learning objectives to understand the concept of the short-run production function, describing the relationship between the quantity of inputs and the quantity
CHAPTER 8: THE COSTS OF PRODUCTION Introduction Now that we have examined consumer behavior in more detail, it is time to look at the decision making of the firm. Costs of production are important to determine
Chapter 5 The Behavior of Firms This chapter focuses on how producers make decisions regarding supply. Individuals demand goods and services. Firms supply goods and services. An important assumption is
Firm Behavior and the Costs of Production WHAT ARE COSTS? The Firm s Objective The economic goal of the firm is to maximize profits. Total Revenue, Total Cost, and Profit Total Revenue, Total Cost, and
Bremen School District 228 Social Studies Common Assessment 2: Midterm AP Microeconomics 55 Minutes 60 Questions Directions: Each of the questions or incomplete statements in this exam is followed by five
Sample Test 3 Ch 10-13 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A cost incurred in the production of a good or service and for which
ECON 101 Introduction to Economics1 Session 10 Cost Concept Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: email@example.com College of Education School of Continuing
Perfectly Competitive Supply Chapter 6 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1.Explain how opportunity cost is related to the supply
NAME: STUDENT ID: Final Exam ECON 101, Section 2 summer 2004 Ying Gao Instructions Please read carefully! 1. Print your name and student ID number at the top of this cover sheet. 2. Check that your exam
Lesson 7 Costs of Production Introduction Our study now combines what we have learned about price from Lesson 5 with utility theory from Lesson 6 to allocate resources among cost factors. Consider that
1. If the per unit cost of production falls, then... A.) the supply curve shifts right (or down) B.) there is a downward movement along the existing supply curve which does not shift C.) the supply curve
23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven
Turgut Ozal University Department of Economics ECO 152 Spring 2014 Assist. Prof. Dr. Umut UNAL PART A - Definitions 1) Define these terms: Perfect competition Homogeneous products Total revenue Total cost
Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There
ECON 21 Principles of Microeconomics (Summer 216) The Production Process and of Production Relevant readings from the textbook: Mankiw, Ch. 13 The of Production Suggested problems from the textbook: Chapter
ECON 260 (2,3) Practice Exam #4 Spring 2007 Dan Mallela Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Profit is defined as a. net revenue
ECO 220 Intermediate Microeconomics Professor Mike Rizzo Second COLLECTED Problem Set SOLUTIONS This is an assignment that WILL be collected and graded. Please feel free to talk about the assignment with
HOMEWORK 1998-2 ECON 103 - SFU the law of diminishing returns have on short-run costs? Be specific. (e) âwhen... And when marginal product is diminishing, marginal cost is rising.â Illustrate and... ECON
Chapter 13 1. What is the amount of money that a firm receives from the sale of its output called? a. total gross profit b. total net profit c. total revenue d. net revenue 2. Susan used to work as a telemarketer,
www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount
Chapter 8 The Labor Market: Employment, Unemployment, and Wages Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. 1. If the price of a factor
Economics 4020 Dr. Rupp Test #1 Fri. Sept 23 rd, 2011 20 Multiple Choice questions (2.5 points each) Pledge (sign) I did not copy another student s answers 1. The profit maximization rule for a firm is
ECON 251 Exam 2 Pink Use the table below to answer the following four questions The table below shows Harry s total utility from consuming beer and wine. The price of beer is $2 per bottle. The price of
ECON 202-501 Fall 2008 Xiaoyong Cao Final Exam Form A Instructions: The exam consists of 2 parts. Part I has 35 multiple choice problems. You need to fill the answers in the table given in Part II of the
MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue
The Costs of Production 1. Total revenue necessarily equals a. total output multiplied by the average cost of output. b. total output multiplied by sales price of output. c. (total output multiplied by
ECONOMICS 10-008 Dr. John Stewart Sept. 30, 2003 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Note a)=1, b)=2
Consumer Choice Introduction Managerial Problem Paying employees to relocate: when Google wants to transfer an employee from its Seattle office to its London branch, it has to decide how much compensation
Chiang_3E_CT_Micro_CH07_Layout 1 3/20/14 2:29 PM Page 175 7 Production and Cost Production and Cost Are Behind Decisions About Supply Having looked in the last chapter at what lies behind demand curves
Econ 101 Summer 2015 Answers to Second Mid-term Date: June 15, 2015 Student Name Version 1 READ THESE INSTRUCTIONS CAREFULLY. DO NOT BEGIN WORKING UNTIL THE PROCTOR TELLS YOU TO DO SO You have 75 minutes
Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided
1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.
CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect
Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label
Final day 2 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. What determines how a change in prices will affect total revenue for a company?
Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything
Seventh Edition Principles of Economics N. Gregory Mankiw CHAPTER 18 The Markets for the Factors of Production In this chapter, look for the answers to these questions hat determines a competitive firm
ECONOMICS ASSIGNMENT CLASS XII MICRO ECONOMICS UNIT I INTRODUCTION 1. What is the Slope of PPC? What does it show? 2. When can PPC be a straight line? 3. Do all attainable combination of two goods that
Fall 2012 ECO 211 Microeconomics Yellow Pages ANSWERS Unit 2 Mark Healy William Rainey Harper College E-Mail: firstname.lastname@example.org Office: J-262 Phone: 847-925-6352 Price Elasticity of Demand Calculate
Chapter 4 Labour Demand McGraw-Hill/Irwin Labor Economics, 4 th edition Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved. 4-2 Introduction Firms hire workers because consumers want to
Chapter Summary 2 The Key Principles of Economics This chapter covers five key principles of economics, the simple, self-evident truths that most people readily accept. If you understand these principles,
Chapter 3 Labour Demand McGraw-Hill/Irwin Labor Economics, 4 th edition Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved. 4-2 Introduction Firms hire workers because consumers want to
OBJECTIVES Explain how managers should set price and output when they have market power With monopoly power, the firm s demand curve is the market demand curve. A monopolist is the only seller of a product
The Theory and Estimation of Cost Chapter 8 Managerial Economics: Economic Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young The Theory and Eti Estimation
MITOCW Lecture 9 The following content is provided under a Creative Commons license. Your support will help MIT OpenCourseWare continue to offer high quality educational resources for free. To make a donation
Principles of Economics Final Exam Name: Student ID: 1. In the absence of externalities, the "invisible hand" leads a competitive market to maximize (a) producer profit from that market. (b) total benefit
Macro_C03_049_077.qxd 1/9/03 3:08 PM Page 49 Unit II Classical Macroeconomic Theory and Economic Growth Chapter 3 The Self-Adjusting Economy Classical Macroeconomic Theory: Employment, Output, and Prices
The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph
Economics 001.01: Principles of Microeconomics Spring 01 Instructor: Robert Munk April, 01 Final Exam Exam Guidelines: The exam consists of 5 multiple choice questions. The exam is closed book and closed
The Theory of Production Production: the creation of any good or service that has economic value to either consumers or other producers. Production analysis focuses on the efficient use of inputs to create
Please recall how TP, MP and AP are plotted The Marginal Revenue Product (MRP) The increase in total revenue for every additional labor unit employed. Units of Labor TP MP Product Price TR MRP ( TR/ L)
uestion : How do we make decisions about inventory? Most businesses keep a stock of goods on hand, called inventory, which they intend to sell or use to produce other goods. Companies with a predictable
Questions 1. Delta Software earned $10 million this year. Suppose the growth rate of Delta's profits and the interest rate are both constant and Delta will be in business forever. Determine the value of
PART II The Market System: Choices Made by Households and Firms PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER PEARSON 2012 Pearson Education, Inc. Publishing as Prentice Hall
Supply in a Competitive Market 8 Introduction 8 Chapter Outline 8.1 Market Structures and Perfect Competition in the Short Run 8.2 Profit Maximization in a Perfectly Competitive Market 8.3 Perfect Competition
Math Recitation #5 October 20, 2009 I. Production functions II. Isoquants and isocost lines III. Increasing, decreasing and constant returns to scale IV. Costs (average, marginal, total) V. Perfect competition
1 Every day you make choices on what to do with the money you have. Should you splurge on a restaurant meal or save money by eating at home? Should you buy a new car, if so how expensive of a model? Should
ECON 202 - MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University J.Jung Chapter 2-4 - Introduction Towson University 1 / 69 Disclaimer These lecture notes are customized for the Macroeconomics
ECON 251 Practice Exam 2 Questions from Exams Gordon spends all his income on spatulas and mixing bowls. Spatulas cost $4 and mixing bowls cost $12. Gordon has $60 of income and considers both spatulas
INTRODUCTION This course covers the field of microeconomics. Microeconomics addresses individual behavior in markets and the interrelationships between markets. This is quite different from macroeconomics,
ACTIVITY 5-2 Externalities A market externality refers to a situation where some of the costs or benefits from an activity fall on someone other than the people directly involved in the activity. Externalities
Goldwasser AP Microeconomics Chapter 9 Making Decisions BEFORE YOU READ THE CHAPTER Summary Chapter 9 explores two questions either-or and how much and then provides a framework for making decisions arising
The Markets for the Factors of Factors of production are the inputs used to produce goods and services. The demand for a factor of production is a derived demand. A firm s demand for a factor of production
Practice Test for Midterm 2 Econ 2010-200 Fall 2009 Instructor: Soojae Moon Please read carefully and choose the choice that best completes the statement or answers the question. Table 7-2 This table refers
Chapter 5: Variable pay or straight salary University Professors get a straight salary which is not even based on age (may be considered high or low, depending on your point of view). Should we introduce
Exam 3 Practice Questions 1. The price elasticity of demand is a measure of: a) how quickly a particular market reaches equilibrium. b) the change in supply associated with lower prices. c) the percent
appendix 9B A Hedonic Model of Earnings and Educational Level Chapter 9 employed human capital theory to explore the demand for education and the relationship between education and pay. This appendix uses
1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot): Quantity Total utility Marginal utility 0 0 XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXX 200 0 = 200 1 200 XXXXXXXXXXX
1 Chapter 1 1.1. Scarcity, Choice, Opportunity Cost Definition of Economics: Resources versus Wants Wants: more and better unlimited Versus Needs: essential limited Versus Demand: ability to pay + want
CHAPTER 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Summary and Learning Objectives 13.1 Demand and Marginal Revenue for a Firm in a Monopolistically Competitive
ECONOMICS 10-008 Dr. John Stewart Sept. 25, 2001 Exam 1 Detailed solution for one Form of the Midterm: The general question are the same for all forms but some questions differ in details so correct answer
UNIT 8 COST CONCEPTS AND ANALYSIS I Objectives After going through this unit, you should be able to: understand some of the cost concepts that are frequently used in the managerial decision making process;