6. What is the main difference between fixed inputs and variable inputs?
7. Explain the law of variable proportions.
8. Which stage of short run production is efficient? Why?
9. Show the relationship between short-run MC and MPL both mathematically and
graphically.
10. Can accounting cost be greater economic cost? Explain.
11. Compare and contrast the following concepts.
a) Explicit cost and implicit cost
b) Economic cost and accounting cost
12 The short run AVC, AC and MC are all U-shaped. Why?
13 Suppose the short run cost function of a firm is given by: TC=2Q^3
–2Q^2
+ Q + 10.
a) Find the expression of TFC & TVC
b) Derive the expressions of AFC, AVC, AC and MC
c) Find the levels of output that minimize MC and AVC and then find the minimum
values of MC and AVC
14 Discuss the main assumptions of perfectly competitive market
15 Describe the feature of monopolistic competition that resembles perfect competitive and
the monopolistic market structure.
16 What are the similarities and differences between oligopoly and monopolistically
competitive market structure?�
6. The main difference between fixed inputs and variable inputs is that fixed inputs are inputs that do not change regardless of the level of output, while variable inputs are inputs that change based on the level of output.
7. The law of variable proportions, also known as the law of diminishing returns, states that as more and more units of a variable input are added to fixed inputs, the marginal product of the variable input will eventually decrease. In other words, beyond a certain point, the addition of more of a variable input will result in smaller increases in output.
8. The stage of short run production that is efficient is the stage where marginal cost (MC) is equal to average variable cost (AVC). This is because at this point, the firm is producing output at the lowest possible cost.
9. Mathematically, the relationship between short-run marginal cost (MC) and marginal product of labor (MPL) is given by the equation MC = ΔTC / ΔQ = ΔVC / ΔQ = MPL x MPK, where TC is total cost, Q is the quantity of output produced, VC is variable cost, and MPL is the marginal product of labor. Graphically, the relationship shows that as MPL increases, MC decreases.
10. Yes, accounting cost can be greater than economic cost. Accounting cost only takes into account explicit costs, which are the actual payments made for inputs. Economic cost includes both explicit costs and implicit costs, which are the opportunity costs of using resources in a particular way. Therefore, economic cost can be higher if implicit costs are taken into consideration.
11.
a) Explicit cost refers to the actual monetary expenses incurred in the production process, while implicit cost refers to the opportunity costs of using resources in a particular way, which do not involve actual monetary payments.
b) Economic cost takes into account both explicit costs and implicit costs, while accounting cost only considers explicit costs.
12. The short-run average variable cost (AVC), average cost (AC), and marginal cost (MC) are all U-shaped due to the law of diminishing returns. Initially, as more variable inputs are added, productivity increases and costs decrease, leading to a downward slope. However, beyond a certain point, adding more variable inputs leads to diminishing returns and increasing costs, resulting in an upward slope.
13.
a) TFC (total fixed cost) is given as 10, since it does not change with the level of output. TVC (total variable cost) can be derived by subtracting TFC from the total cost function: TVC = TC - TFC = 2Q^3 - 2Q^2 + Q.
b) AFC (average fixed cost) is calculated by dividing TFC by the level of output: AFC = TFC / Q = 10 / Q. AVC (average variable cost) is calculated by dividing TVC by the level of output: AVC = TVC / Q = (2Q^3 - 2Q^2 + Q) / Q = 2Q^2 - 2Q + 1. AC (average cost) is calculated by summing AFC and AVC: AC = AFC + AVC = 10 / Q + 2Q^2 - 2Q + 1. MC (marginal cost) is calculated by taking the derivative of TC with respect to Q: MC = dTC / dQ = 6Q^2 - 4Q + 1.
c) To find the levels of output that minimize MC and AVC, set the derivatives of MC and AVC equal to zero and solve for Q. Then substitute those values into the respective cost functions to find the minimum values of MC and AVC.
14. The main assumptions of perfectly competitive market are:
- There are many buyers and sellers in the market.
- Products are homogeneous, meaning they are identical and indistinguishable from each other.
- There is perfect information available to all market participants.
- There are no barriers to entry or exit for firms in the market.
- Firms are price takers, meaning they have no influence over the market price and must accept it as given.
15. In monopolistic competition, there are many sellers like in perfect competition, but the products are differentiated, meaning they have distinct features or attributes that make them unique. This resembles perfect competition in terms of many sellers, but resembles monopolistic market structure in terms of product differentiation.
16. Both oligopoly and monopolistic competition involve few sellers in the market. However, in monopolistic competition, products are differentiated, while in oligopoly, products can be homogeneous or differentiated. Oligopoly also tends to have higher barriers to entry compared to monopolistic competition.