Question 1

When diseconomies of scale outweigh economies of scale, the long-run average cost curve rises.

Accepted Answer

Diseconomies of scale occur when the firm experiences a decrease in efficiency as it grows larger. This can result in higher costs per unit of output, causing the long-run average cost curve to rise as output increases, outweighing the benefits of economies of scale.

Question 2

Explain, identify, and/or discuss the relationship between each of the following pairs of terms:
a.capital intensive and labor intensive
b.economies of scale and the LRAC curve
c.short run and long run
d.negative marginal returns and total output

Accepted Answer

The answer of Explain, identify, and/or discuss the relationship between...

Question 3

What is the difference between marginal cost and average variable cost? Why does AVC look so much like ATC? Will MC be the same whether computed from TVC or TC? Explain.

Accepted Answer

The answer of What is the difference between marginal cost...

Question 4

A firm becomes more capital intensive if it increases the ratio of capital to labor.

Accepted Answer

When a firm increases the ratio of capital to labor, it means it is investing more in physical capital such as machines, equipment, and technology relative to the number of employees it has. This makes the firm more capital intensive, as it relies more on capital rather than labor to produce goods or services.

Question 5

Describe the relationships between marginal product and marginal cost and average product and average cost.

Accepted Answer

The answer of Describe the relationships between marginal product and...

Question 6

The long-run average cost curve is, in principle, tangent to an infinite number of short-run average cost curves.

Accepted Answer

This is because the long-run average cost curve represents the lowest possible average cost of producing a certain level of output given all possible combinations of inputs, while each short-run average cost curve represents the lowest possible average cost of producing a certain level of output given a fixed set of inputs. Therefore, the long-run average cost curve will touch or be tangent to each short-run average cost curve at the point where the firm optimally chooses the combination of inputs to minimize its cost of production.

Question 7

Discuss and explain why, in general, the profit-maximizing firm will seek a combination of factors such that MP₁/P₁ = MP₂/P₂ = Ö = MPn/Pn.

Accepted Answer

The answer of Discuss and explain why, in general, the...

Quiz 8: Production and Cost