\"ln economics, the \'long run\' is any period of time greater than 1 year.\" Ag
ID: 1217568 • Letter: #
Question
"ln economics, the 'long run' is any period of time greater than 1 year." Agree or disagree with this statement and explain your reasoning. Suppose that a small custom-painting & detailing auto body shop has the following expenses: fill in the blanks in the above table at what level of output does the firm start to experience diminishing marginal returns to its variable inputs? what is the "minimum efficient scale of production" in this industry if this firm's cost schedules are typical of all firms in the market and no alternative more capital intensive technologies exist. Explain why marginal cost curves slope downward as firms increase their output from "0"; but, eventually, as output continues to expand, marginal cost curves slope upward and ultimately become vertical.Explanation / Answer
3. In Economics, most of the concepts refer to Long run and short run, however there is no specific timelines for these periods. They can be ranging from weeks to months.
Long run typically means, sufficient time for all the necessary inputs are varied.
4a.
In the below table marginal cost is calculated as cost of production of 1 extra unit
So for producing 4 units,
MC = (1400-800)/(4-2) = 600 / 2 = 300
Average Cost = (FC + VC) / Q
Average Fixed Cost = FC / Q
b. From the table above it is very clear that diminishing marginal returns to its variable inputs is starting after 10 units per week
c. Minimum efficient scale is based on the lowest number of production to get lowest ATC.
So from the table above, it is clear that this is possible at 12 units per week.
5. According to the theory of Economics of scale, as the firm increases its production level, costs come down upto some extent, because of the constant fixed costs. However, after reaching a point, variables cost increase in such a way that marginal costs starts increasing and firms starts diminishing returns to production. Because of this, overall costs increase after N units of production.
# Cars Painted Variable Cost Marginal Cost Average Cost Avg. Fixed Cost 2 800.00 400.00 600.00 200.00 4 1400.00 300.00 450.00 100.00 6 1800.00 200.00 366.67 66.67 8 2100.00 150.00 312.50 50.00 10 2400.00 150.00 280.00 40.00 12 2800.00 200.00 266.67 33.33 14 3400.00 300.00 271.43 28.57 16 4400.00 500.00 300.00 25.00 18 5600.00 600.00 333.33 22.22 20 7000.00 700.00 370.00 20.00Related Questions
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