Chapter 8

Question 1

In the long​ run, all factors of production are ???? There are no ????? factors.

Answer 1

variable, fixed

Question 2

Explain why marginal products per dollar spent on each factor are
equalized
.

Answer 2

If one resource gives more extra output per dollar than another, the firm shifts spending toward that resource until the “bang for the buck” (marginal product per dollar) is the same for all resources. This equalization ensures the firm is using its money as efficiently as possible.

Question 3

Explain the principle of substitution

Answer 3

Profit-maximizing firms adjust their methods of production in response to changes in relative prices.

Question 4

whats the LRAC (long run average cost curve

Answer 4

The long-run average cost curve (LRAC) shows the lowest possible cost of producing each level of output using the best available technology and prices for resources.

Below the LRAC: These cost levels are unattainable because they would require better technology or cheaper resources that aren’t currently available.
On the LRAC: These are the lowest costs possible with what is available.
It’s like a limit that separates what is achievable and what isn’t based on current options.

Question 5

When the LRAC curve reaches its​ minimum, the firm has reached its ???? If the curve is flat over some range of​ output, we say the firm is exhibiting.
.

Answer 5

minimum efficient scale, constant returns to scale

Question 6

Over the range of output where the LRAC curve is​ falling, the firm is experiencing ????
. As output​ increases, average costs are ???
.

Answer 6

decreasing costs or increasing returns, Falling.

Question 7

Over the range of output where the LRAC curve is​ rising, the firm is experiencing ????
. As output​ increases, average costs are ???

Answer 7

increasing costs or decreasing returns, rising

Question 8

Explain the Short-run average total cost (SRATC)

Answer 8

Short-run average total cost (SRATC) curves represent the cost of producing at different output levels when some inputs (like machinery or buildings) are fixed and can’t be easily changed.

Question 9

Difference between diminishing marginal product vs and diseconomies of scale

Answer 9

The key difference is that diminishing marginal product deals with short-run inefficiencies due to fixed inputs, while diseconomies of scale occur in the long run when all inputs are variable but the operation becomes too large to manage efficiently.

Question 10

Explain the term spreading overhead

Answer 10

Spreading overhead means dividing fixed costs (like rent, salaries, or equipment) over more units of production.

When you produce more, the same fixed cost is spread across more items, so the cost per item goes down.
Example: If your rent is $1,000 and you make 100 products, each product “carries” $10 of rent. But if you make 200 products, each product only “carries” $5 of rent.

Question 11

What does cost minimization requires

Answer 11

Mpk/pk = Mpl/pl

Question 12

When an the SRATC meet the LRAC

Answer 12

When the fixed factor on the SRATC is optimal

Question 13

a. In the long​ run, a firm is moving along its existing LRAC curve. In the very long​ run, however, the LRAC curve is shifting as technology improves.

Answer 13

Downward

Question 14

Economists want to know how much better we’re getting at producing things over time, especially due to improvements in technology. To measure this, they look at ????

Answer 14

Productivity

Question 15

Over the very long​ run, the most important source of sustained growth in material living standards is ??? driven by

Answer 15

productivity growth, tehbological change.

Question 16

The following three kinds of technological change influence production and cost in the very long​ run:

Answer 16

New techniques, improved inputs, and new products.

Question 17

Over the very long​ run, which of the following has influenced the most on costs of production and on standards of​ living?

Answer 17

Increases in output made possible by technological improvements