Untitled Quiz

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Questions and Answers

Which of these options are correct regarding a particular good that a consumer is willing to give up in order to obtain an additional unit of another good, which is a necessary condition for the short run cost function?

Marginal Rate of Substitution (correct)

Average Cost

Total Cost

Marginal Utility

What is the mathematical relationship between marginal product and average product?

If marginal product is greater than average product, average product is rising. If marginal product is less than average product, average product is falling. The marginal product curve cuts the average product curve at the average product's maximum point. This means that where average product is at a maximum, it is equal to marginal product.

What are fixed costs?

Fixed costs are costs that do not vary with output produced. They are incurred regardless of the output level and are related to fixed inputs used in production, such as rental costs for the factory, land, or machinery.

The marginal cost (MC) is the cost of producing an additional unit of output and is calculated by dividing the change in total cost by the change in output.

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What are Isocost lines?

Isocost lines represent all possible combinations of labor and capital that a firm can purchase for a given total cost. Signup and view all the answers

What is the expansion path?

The expansion path is the curve that passes through the points of tangency between a firm's isocost lines and its isoquant curves. It represents the combinations of labor and capital that a firm will choose to minimize costs for each output level. Signup and view all the answers

What is the profit maximization rule for a price-taking firm in a perfectly competitive market?

A price-taking firm in a perfectly competitive market will choose its output so that marginal cost equals price, which translates to MC(q) = MR = p. Signup and view all the answers

What is the meaning of a firm's shutdown decision?

A firm making a loss will shut down if its total revenue is less than its variable costs of production, or if its price per unit is less than its average variable cost. Signup and view all the answers

What is the difference between short-run costs and long-run costs?

Short-run costs include both fixed costs (associated with fixed inputs that cannot be changed in the short run) and variable costs (associated with inputs that can be adjusted in the short run). Long-run costs are all variable, as all inputs can be adjusted in the long run. Signup and view all the answers

What are economies of scale?

Economies of scale occur when a doubling of output results in less than a doubling of cost. In other words, it becomes cheaper for a firm to produce a larger quantity of output. Signup and view all the answers

What is the profit-maximizing rule for a firm?

To maximize profits in the long run, a firm should choose its quantities of inputs so that the last cedi's worth of any input added to the production process yields the same amount of extra output. This ensures that the firm is utilizing all inputs efficiently and maximizing output for each unit of cost. Signup and view all the answers

Study Notes

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