econ190 chapter13

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1、1.Whatistherelationshipbetweenafirm’stotalrevenue,profit,andtotalcost?Therelationshipbetweenafirm'stotalrevenue,profit,andtotalcostisprofitequalstotalrevenueminustotalcosts.2.Giveanexampleofanopportunitycostthatanaccountantmightnotcountasacost.Whywouldtheaccountantignorethiscost?Anaccountan

2、twouldnotcounttheowner’sopportunitycostofalternativeemploymentasanaccountingcost.AnexampleisgiveninthetextinwhichHelenrunsacookiebusiness,butshecouldinsteadworkasacomputerprogrammer.Becauseshe'sworkinginhercookiefactory,shegivesuptheopportunitytoearn$100perhourasacomputerprogrammer.Theaccou

3、ntantignoresthisopportunitycostbecausemoneydoesnotflowintooroutofthefirm.ButthecostisrelevanttoHelen'sdecisiontorunthecookiefactory.3.Whatismarginalproduct,andwhatdoesitmeanifitisdiminishing?Marginalproductistheincreaseinoutputthatarisesfromanadditionalunitofinput.Diminishingmarginalproduct

4、meansthatthemarginalproductofaninputdeclinesasthequantityoftheinputincreases.4.Drawaproductionfunctionthatexhibitsdiminishingmarginalproductoflabour.Drawtheassociatedtotal-costcurve.(inbothcases,besuretolabeltheaxes.)Explaintheshapesofthetwocurvesyouhavedrawn.Figure4showsaproductionfunction

5、thatexhibitsdiminishingmarginalproductoflabor.Figure5showstheassociatedtotal-costcurve.Theproductionfunctionisconcavebecauseofdiminishingmarginalproduct,whilethetotal-costcurveisconvexforthesamereason.5.Totalcostconsistsofthecostsofallinputsneededtoproduceagivenquantityofoutput.Itincludesfi

6、xedcostsandvariablecosts.Averagetotalcostisthecostofatypicalunitofoutputandisequaltototalcostdividedbythequantityproduced.Marginalcostisthecostofproducinganadditionalunitofoutputandisequaltothechangeintotalcostdividedbythechangeinquantity.Anadditionalrelationbetweenaveragetotalcostandmargin

7、alcostisthatwhenevermarginalcostislessthanaveragetotalcost,averagetotalcostisdeclining;whenevermarginalcostisgreaterthanaveragetotalcost,averagetotalcostisrising.Figure66.Figure6showsthemarginal-costcurveandtheaverage-total-costcurveforatypicalfirm.Ithas