Please provide a detailed discussion of these two figures. I am looking for you

Question

Please provide a detailed discussion of these two figures.

I am looking for you to show that you understand the basic concepts depicted in these two figures. Be sure to discuss the significance of rates of change in the functions, total, marginal, average relationships (i.e., how they interact with each other), etc. In terms of Figure 9.4, you need to look at the shape of the isoquant and its significance, the relevance of the isocost line, the point of equilibrium, the meaning of the optimization rule that defines the equilibrium, etc.

Use this assignment to think about how this knowledge is useful to your day-to-day application.

CHAPTER 9 Production and Cost in the Long Run 319 Although managers whose goal is profit maximization are generally and primar- ily concerned with searching for the least-cost combination of inputs to produce a given (profit-maximizing) output, managers of nonprofit organizations may face an alternative situation. In a nonprofit situation, a manager may have a budget or fixed amount of money available for production and wish to maximize the amount of output that can be produced. As we have shown using isocost curves, there are many different input combinations that can be purchased for a given (or fixed) amount of expenditure on inputs. When a manager wishes to maximize output for a given level of total cost, the manager must choose the input combination on the isocost curve that lies on the highest isoquant. This is a constrained maximization problem, and the rule for solving it was set forth in Chapter 3 Whether the manager is searching for the input combination that minimizes cost for a given level of production or maximizes total production for a given level of expenditure on resources, the optimal combination of inputs to employ is found by using the same rule. We first illustrate the fundamental principles of cost mini- mization with an output constraint; then we will turn to the case of output maxi- mization given a cost constraint Production of a Given Output at Minimum Cost The principle of minimizing the total cost of producing a given level of output is illustrated in Figure 9.4. The manager wants to produce 10,000 units of output FIGURE 9.4 Optimal Input Combina- tion to Minimize Cost for a Given Output K' K' 140 134 100 120 90 100 40 Q 10,000 180 210 201 0 60 90 150 Labor (4

Explanation / Answer

The firm will produce at the point where the isoquant is tangent to the iso cost line where the cost will be minimized and profits are maximized. The input combination of capital and labor is chosen to minimize cost while moving on a higher iso cost curve implies greater cost is incurred and more of both inputs required. While a higher isoquant means higher output is being produced. The given figure shows that output is produced at E and to the left of E along the iso quant more capital is used and less labor is employed to produce the output.

The total production shows the firm in the short run when capital is fixed and labor increases the level of output. Initially at an increasing rate than at decreasing rate as the law of diminishing returns set in and finally reaches a maximum point where profits are maximized.

The graph showing the relationship between AP and MP implies that when MP is greater than AP then AP is rising and when MP is below AP then AP falls and MP cuts AP at its maximum point. The level at which MP starts declining shows the phase when diminishing returns play its role.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.