Eco assigment 2

saiay8945

assignment_9.pdf

Home >Business & Finance homework help >Economics homework help >Eco assigment 2

Assignment #9 Production Costs Part 2

(10 Points)

Define the following terms:

Diseconomies of Scale

Economic Efficiency

Economic Profit

Economies of Scale

Firm

Fixed Costs

Long-run

Marginal Cost

Marginal Product

Minimum Efficient Level of Production

Production

Short-run

Technical Efficiency

Variable Costs

Short Answer Questions:

1. Briefly explain the Law of diminishing marginal productivity. Give one real

world example.

2. Explain the relationship between production and costs. How are the curves

related?

3. Give one example of economies of scope and explain how economies of

scope reduce average total costs of production

4. Complete the following equations:

a. TC = _____ + VC

b. ______ = AFC + AVC

c. ______ = TCn – TCn – 1

d. ATC = ______ ÷ ______

5. To produce coffee tables, firms can use a combination of labor and capital

in its production process. Suppose labor costs $60 per day and the cost of

machinery costs $200. Use the following information to calculate the total

cost for each firm and determine which firm is technically efficient and

economically efficient.

a. Firm x can produce 500 coffee tables using 25 workers and 5

machines.

Firm y can produce 500 coffee tables using 15 workers and 7

machines.

Firm z can produce 500 coffee tables using 20 workers and 4

machines.

b. Firm a can produce 1000 coffee tables using 40 workers and 8

machines.

Firm b can produce 1000 coffee tables using 50 workers and 7

machines.

Firm c can produce 1000 coffee tables using 45 workers and 7

machines.

6. Suppose a firm produces televisions. It can produce 125,000 TV’s at a total

cost of $21,875,000 or it can produce 200,000 TV’s at a total cost of

$32,000,000. Is this firm experiencing economies of scale, diseconomies of

scale, or constant returns to scale? (Calculate ATC for both levels of

production.)

7. The table below represents production costs for building desks. Complete

the table below and answer the following questions.

a. At what range of production is this company experiencing economies

of scale?

b. At what range of production is this company experiencing constant

returns to scale?

c. At what range of production is this company experiencing

diseconomies of scale?

d. What is the minimum efficient level of production?

Cost

($)

Output

(Q)

8. The table below represents short-run production costs for a small business.

Complete the table below and answer the following questions.

a. At what level does diminishing marginal productivity begin? (hint:

marginal costs and marginal productivity are inversely related)

9. Use the graph below to answer the following questions

a. On the graph above, correctly sketch the following curves: Marginal Cost (MC), Average Fixed

Cost (AFC), Average Variable Cost (AVC) and Average Total Cost.

Cost

($)

Output

(Q)

f. Sketch a graph illustrating your your answer for part d

Cost

($)

Output

(Q)

g. Sketch a graph illustrating your your answer for part e

b. What gives the marginal cost curve its shape?

__________________________________________________________________________________

c. Where is the average total cost minimized?

__________________________________________________________________________________

d. Under what condition would a business decide to shut-down production?

__________________________________________________________________________________

e. Under what condition would a firm continue to produce even though they are losing money?

__________________________________________________________________________________