Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506893
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 8, Problem 12CQ
To determine
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The law if diminishing marginal returns is the rate at which one input maybe substituted for another input in the production process?
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Chapter 8 Solutions
Microeconomics: Private and Public Choice (MindTap Course List)
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- Which of the following statements are true? A basic assumption of the theory of production is that: A firm cannot borrow money to finance its input expenditures. A firm can buy as much labor and capital as it desires in the long-run A firm can reduce the number of workers it uses, but it cannot adjust how much capital it uses in the short-run When the marginal product of labour starts falling, the firm must cease production a. II only b. II and III c. I, III and IV d. II, III and IVarrow_forwardAnswer the question based on the following information Suppose 20 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively. If the price of product A is $0.50 and the firm is producing efficiently the firm will realizearrow_forwardAn effluent fee is imposed on a steel firm to reduce the amount of waste materials that it dumps in a river. Use the following two statements to answer this question: I. The more easily factors of production can be substituted for one another (for example, capital can be used to reduce waste water), the more effective the fee will be in reducing effluent. II. The greater the degree of substitution of capital for waste water, the less the firm will have to pay in effluent fees. (Hint: See Example 7.4 in the textbook) A. Both I and II are true B. I is true and II is false C. Both I and II are false D. I is false and II is truearrow_forward
- Discuss the impact of rational self-interest on each of the following decisions. Whether to attend college full time or enter the workforce full time Whether to buy a new textbook or a used one Whether to attend a local college or an out-of-town college (Production in the Short Run) Complete the following table. At what point does diminishing marginal returns set in? Units of the Variable Resource Total Product Marginal Product 0 0 — 1 10 — 2 22 — 3 — 9 4 — 4…arrow_forwardExplain why a profit function π(K,L) doesn't exist such that: The marginal benefit with respect to capital is 2KLarrow_forwardWhich of the following is a cause of diminishing marginal productivity? a.In the long run, labor gets tired as more labor gets added to the production process. b.In the short run, labor runs out of available capital as more labor gets added to the production process. c.In the short run, capital gets more expensive as you add more capital to the production process. d.In the long run, capital depreciates as more capital gets added to the production process.arrow_forward
- Which of the following statements is true? (a) If a firm is experiencing decreasing returns, it will face increasing opportunity costs and hence will have a convex production possibility frontier. (b) If a firm has a steep average total cost curve, then it will have fairly low fixed costs as a proportion of total costs and would incur only a low cost penalty if output declines. (c) A firm with a concave production function at all levels of output would face a convex total cost function at all levels of output. (d) If a firm faces diminishing returns, then at low levels of output, the average variable cost effect would dominate, but at higher levels of output, the average fixed cost effect would dominate.arrow_forwardIn economics, what is the law of diminishing marginal returns? A. The tendency of firms to minimize production costs B. The observation that as additional units of a variable input are added to fixed inputs, the additional output diminishes C. The relationship between inflation and unemployment D. The impact of government regulation on business operationsarrow_forwardLet us consider the cost implications of the short-run production schedule from assignment number 7, where capital was fixed at 2 units of capital. Labor: 0 1 2 3 4 5 6 7 8 9 Output: 0 6 24 60 120 170 210 240 260 270 In this scenario, since we only have two inputs (Capital and Labor), and since the amount of capital is fixed, the cost of total cost capital would also be Total Fixed Cost (TFC) and since labor is variable, the total cost of labor would be Total Variable Cost (TVC). In that context, assume that the cost of capital is $40 per unit per period, while the cost of labor (or wage rate) is also $30 per unit of labor per period. (a) Use this information set up a diagram (using excel) that shows total cost (TC) and total variable cost (TVC) of the firm per period in the short run with the level of output on the horizontal axiarrow_forward
- Let us consider the cost implications of the short-run production schedule from assignment number 7, where capital was fixed at 2 units of capital. Labor: 0 1 2 3 4 5 6 7 8 9 Output: 0 6 24 60 120 170 210 240 260 270 In this scenario, since we only have two inputs (Capital and Labor), and since the amount of capital is fixed, the cost of total cost capital would also be Total Fixed Cost (TFC) and since labor is variable, the total cost of labor would be Total Variable Cost (TVC). In that context, assume that the cost of capital is $40 per unit per period, while the cost of labor (or wage rate) is also $30 per unit of labor per period. Also, use this information to then set up another diagram showing the firm's short run marginal cost (MC), average total cost (ATC), and average variable cost (AVC), with output on the horizontal axis (For the marginal cost, remember that when you graph marginal values you should always put them in…arrow_forwardFill in the missing parts in the following tables to illustrate the behavior of production and costs in the short-run; then determine the optimal level of production according to the number of inputs you are intending to use. Output Units Land Square Meters Capital Egyptian Pounds Labor Units 0 1000 1600 2100 2500 2600 Output FC VC TC MCL MPL AVC AFC ATC 0 1000 1600 2100 2500 2600 -Hint Consider land and capital as fixed factors, while labor units as variable factors. The cost of land is L.E20 per square meter. The interest rate on capital is 10%. The average wages per unit of labor is L.E1500.arrow_forwardYour team can produce an output equal to Q=1000 units and you have two inputs or resources to use. These resources are labor and capital. Assume the wage rate is is $10 for labor and renting cost for a machine is $20. Suppose you have three combinations of resources available to you and these are: Option I Labor = 10 Capital = 5 Option II Labor = 4 Capital = 8 Option III Labor = 14 Capital = 2 Find the least cost method and decide which method you will select to produce Q=1000arrow_forward
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