econ final

Question 1

Describe the relationship between APL and AVC.

Answer 1

negative relationship

Question 2

Describe the relationship between MPL and MC.

Answer 2

negative relationship

Question 2

What shape will the long-run total cost function take if returns to scale is constant?

Answer 2

linear/straight

Question 3

What shape will the long-run total cost function take if returns to scale is decreasing?

Answer 3

convex shape (happy face)

Question 4

What shape will the long-run total cost function take if returns to scale is increasing?

Answer 4

concave shape (sad face)

Question 5

How do you determine constant returns to scale?

Answer 5

exponents of L and K add up to 1

Question 6

How do you determine decreasing returns to scale?

Answer 6

exponents of L and K add up to less than 1

Question 7

How do you determine increasing returns to scale?

Answer 7

exponents of L and K add up to more than 1

Question 8

What are the main characteristics of perfect competition?

Answer 8

• cannot determine price for its output
• large number of buyers/sellers
• products are identical
• no barriers to entering or exiting the market
• horizontal demand curve

Question 9

A firm’s short-run supply curve is…

Answer 9

the MC curve above its minimum AVC