unit 7 for economic test

Question 1

when is a firm a cost minimiser

what does c(y) represent

Answer 1

a firm is a cost minimiser if it produces any given output level when y (output) is greater or equal to 0, at the smallest possible total cost.

c(y) denotes the firms smallest possible total cost for producing y units of output. it is also the firms total cost function

Question 2

write down the smallest possible total cost for producing y output units from your notes

Answer 2

do it

Question 3

do the worked examples for both Cobb Douglas and perfect compliments of cost minimisation

Answer 3

do an example now do it

Question 4

average cost is the cost function c (w1,w2,y) divided by y

in short it is the total cost divided by the output level

Answer 4

ye

Question 5

if a firms technology exhibits constant returns to scale, then doubling its output level from y’ to 2y’ requires doubling all input levels:

• total production cost doubles
  average production cost does not change

if a firms technology exhibits decreasing returns to scale, then doubling its output level from y’ to 2y’ requires doubling all input levels:

• total production cost more than doubles
• average production cost increases

if a firms technology exhibits increasing returns to scale, then doubling its output level from y’ to 2y’ requires doubling all input levels:
- total production cost less than doubles
- average production cost decreases

Answer 5

yep

Question 6

look at marginal cost function and write it out

Question 7

for any output level y, the long run total cost curve always gives the lowest possible total production cost , therefore the long run average total cost curve must always give the lowest possible average total production cost

Answer 7

.

Question 8

practice marginal cost function now

Answer 8

.

Question 9

for any output level y> 0 the long run marginal cost is the marginal cost for the short run chosen by the firm

Answer 9

.

Question 10

practice drawing a cost curve

Answer 10

.

Question 11

marginal cost is equal to average total cost when atc is at its minimum

Answer 11

.

Question 12

avc is equal to mc at its minimum usually reached at 0

Answer 12

.

Question 13

how to find a minimum or maximum point

Answer 13

Find minimum points, derive and equal to 0. If cant move anything over to other side then if its negative its less than 0 and positive its greater than 0

Question 14

what does the double derivative mean if its maximum or minimum

Answer 14

A positive second double derivative means its a minimum and negative a maximum

Question 15

what should you do and state if derive a function and its equal to 0 and can’t do much.

Answer 15

Constant positive derivative means that the function is increasing and, if defined on all values of δ, does not have a minimum. However, ATC is only sensible when δ ≥ 0, hence ATC reaches its minimum at δ = 0.

Question 16

what can we say about the relationship between marginal cost and average total cost

Answer 16

marginal cost is equal to average total cost when average total cost is at its minimum,

Question 17

relationship of average variable cost and marginal cost

Answer 17

average variable cost and marginal cost are equal at the point that average variable cost equals its minimum

Question 18

how to draw a supply curve if asked when only got mc

Answer 18

The supply curve is equal to the marginal cost curve as long as the marginal cost curve is higher than the average cost curve. In this case, this is the case as long as the marginal cost is positive.