random notes for economic test

Question 1

are factors fixed in both the short and long run

Answer 1

no.
In the short run factors are fixed, however in the long run they can vary and something can be made more feasible

Question 2

what is the typical formula of a cost function

Answer 2

Cost function c(w1,w2,y). This is used to measure the minimal costs of producing y units of output when factor prices are w1 and w2

C = w1x1 + w2x2

x2= c/w2 - w1/w2 xX1

The slope is -w1/w2 with vertical intercept c/w2

Question 3

TRS= - mp1/mp2 which is equal to the slope

Answer 3

.

Question 4

what does the average fixed,varbiable cost look like

Answer 4

the average fixed costs decrease as output is increased

the average variable cost eventually increase as output is increased

the combination of these two effects produces a shaped average cost curve

Question 5

points to know:

the average variable cost curve may intitallly slope down but need not. however, it will eventually rise, as long as there re fixed factors that constrain production.

the average cost curve will initially fall due to declining fixed costs but then rise due to the increasing average variable costs

the marginal cost and average variable cost are the same at the first small unit of output

the marginal cost curve passes through the minimum point of both the average variable cost and the average cost curves

Question 6

the area under the mc graph is equal to vc, the formula can be found in ‘special notes’

Answer 6

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