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1. Explain the relationship between a firm's short-run production function and its short-run cost function. Focus on the marginal product of an input and the marginal cost of production. 2. Use the...

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1. Explain the relationship between a firm's short-run production function and its short-run cost function. Focus on the marginal product of an input and the marginal cost of production.
2. Use the model of perfect competition described in this chapter to explain, illustrate, or elaborate on the following statements.
a. "Increasing competition from new firms entering the market is good because it means one is in good business."
b. "One important difference between an entrepreneur and a manager is that the former gets into a market before demand increases, while the latter gets into the market after the shift."
Answered Same Day Dec 21, 2021

Solution

Robert answered on Dec 21 2021
122 Votes
1. Explain the relationship between a firm's short-run production function and its short-run cost function. Focus on the marginal product of an input and the marginal cost of production.
In a simple production function with 2 inputs we have 1 variable input like labour and 1 fixed input like capital in short run. So the total SR costs= STC = wages*amount of labor used = w*L
MC=dSTC/ dQ= w*dL/dQ= w/ MP
So MP and MC are inversely relates. When MC rises MP falls
When MC is falling MP is rising as w is kept fixed.
2. Use the model of perfect competition described in this chapter to explain, illustrate, or elaborate on the following statements.
a. "Increasing competition from new firms entering the market is good because it means one is in good business."
YES but in the short run only.
In pc new firms enter a market when abnormal...
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