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- Average cost curves (except for avenge fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing. Why do you think that average and marginal cost curves have the same general shape?In choosing a production technology, how will firms react if one input becomes relatively more expensive?What shape of a long-run average cost curve illustrates economies of scale, constant returns to scale, and diseconomies of scale?
- Which costs are measured on per-unit basis: fixed costs, average cost, avenge variable cost, variable costs, and marginal cost?Suppose the cost of machines increases to 55, while the cost of labor stays at 40. How would that affect the total cost of the three methods? Which method should the film choose now?What is the relationship between marginal product and marginal cost? (Hint: Look at the curves.) Why do you suppose that is? Is this relationship the same in the long run as in the short run?
- What is the difference between economies of scale, constant returns to scale, and diseconomies of scale?A small company that shovels sidewalks and driveways has 100 homes signed up for its services this winter. It can use various combinations of capital and labor: intensive labor with hand shovels, less labor with snow blowers, and still less labor with a pickup truck that has a snowplow on front. To summarize, the method Choices are: Method 1: 50 units of labor, 10 units of capital Method 2: 20 units of labor, 40 units of capital Method 3: 10 units of labor, 70 units of capital If hiring labor for the winter costs $100/unit and a unit of capital costs 400, what is the best production method? What method should the company use if the cost of labor rises to $20/unit?Do you think that the taxicab industry in large cities would be subject to significant economies of scale? Why or why not?
- Small Mom and Pop firms, like inner city grocery stores, sometimes exist even though they do not earn economic profits. How can you explain this?How would an improvement in technology, like the high-efficiency gas turbines or Pirelli tire plant, affect me lung-nm average cost curve of a firm? Can you draw the old curve and the new one on the same axes? How might such an improvement affect other firms in the industry?Would you consider an interest payment on a loan to a film an explicit or implicit cost?