Chapter Questions

CHAPTER QUESTIONS

6.1Explain the difference between marginal cost and incremental cost. 6.2Marginal cost is the cost of producing the “last”unit of output.Do you agree? If not,then why not. 6.3Consider the production function Q = f(K,L),where Q represent units of output,and K and L represent units of capital and labor inputs, respectively.In the short run,demonstrate that for fixed input prices,the shape of the total variable cost curve is identical to the shape of the total product of labor curve. 6.4All costs are opportunity costs.Do you agree? Explain. 6.5Only implicit costs are opportunity costs.Do you agree with this statement? If not,then why not? 6.6Since the prices of productive inputs must always be positive,and since the cost of hiring another unit of,say labor,is the wage rate,it must also be true that marginal cost of producing one more unit of output must also be positive.Do you agree? Explain. 6.7Demonstrate that MC = ATC when ATC is minimized. 6.8Demonstrate that MC = AVC when AVC is minimized. 6.9Explain the difference between total fixed cost and sunk cost.Give examples of each. 6.10For the production function Q = f(K,L),demonstrate that in the short run marginal cost is equal to the wage rate divided by the marginal product of labor. 6.11For the total cost function TC = b0 + b1Q + b2Q2 + b3Q3,demonstrate that (3b3b1 - b2 2) > 0 is required for minimum marginal cost to be positive. 6.12Explain the difference between the learning curve effect and the experience curve effect. 6.13The learning curve effect is summarized by the equation G=jQb , where j is the cost of producing the first unit of output, b= (log m)/(log l), m is the learning factor,and l is a scalar increase in production.How would you go about estimating the values of j and b? 6.14Suppose that learning factor is zero.What does this imply about the amount of labor that should be used in the production process? 6.15Large firms tend to be more management “top heavy.”That is,a larger proportion of their personnel are management than is true of small firms.Do you agree with this statement? Why? 6.16Large companies are more likely to experience diseconomies of scale than small companies.Do you agree? If not,then why not? 6.17Explain some of the reasons a firm might experience economies of scale.What is the relation between economies of scale and increasing returns to scale? Be specific. 6.18Economies of scale and economies of scope are the same thing.Do you agree with this statement? If not,then why not?