Consider the following:
(i) Define the term diminishing marginal returns to labor. When diminishing marginal returns to labor exist, what can be said about the firm's cost curves?
(ii) Define the term decreasing returns to scale. When decreasing returns to scale exist, what can be said about the firm's cost curves?
(i) Diminishing marginal returns to labor exist when additional labor is applied to a fixed amount of capital, resulting in smaller and smaller increases in output. The firm's short-run marginal cost curve will be upward sloping when there are diminishing marginal returns to labor.
(ii) Decreasing returns to scale exist when a 1% increase in both labor and capital cause total output to rise by less than 1%. When input prices are held constant, decreasing returns to scale will cause the firm's long-run average cost curve to be upward sloping.
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A firm's value added is
a. the revenue it receives by selling its output b. usually not included in GDP c. the revenue it receives for its output, minus the cost of all the intermediate goods it buys d. the revenue it receives for its output, plus the cost of all the intermediate goods it buys e. the revenue it receives for its output, minus the taxes that it pays
If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect:
A. the firm to charge a price higher than P1. B. the firm to produce and sell more than Q1. C. the average costs of production to decrease below AC1. D. the firm to charge a price lower than P1.
The New Deal was
A. legislation passed by the Roosevelt administration. B. the cornerstone of the Kennedy administration. C. a government agency that regulated auto dealerships. D. the name of a television game show in the 1930s.
Market failure occurs when
A. the price system fails to generate an efficient allocation of resources. B. the price system allows consumers to make their own decisions. C. the price system fails to generate an equal distribution of wealth. D. the price system fails to generate an equal distribution of income.