Chapter 1. eFigure 7.8
eFigure
Isoquants
true
true
You must read each slide, and complete any questions on the slide, in sequence.
Question 1.1
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Correct! Along the firm’s short run average total cost curve, the per unit cost of production is initially decreasing, reaches its minimum and then increases. This is due to the increasing returns to labor experienced at low levels, where the addition of each new worker increases the marginal product of labor. Eventually the marginal product of labor decreases with the addition of new workers and the per unit cost of production then begins to increase.
Incorrect! Along the firm’s short run average total cost curve, the per unit cost of production is initially decreasing, reaches its minimum and then increases. This is due to the increasing returns to labor experienced at low levels, where the addition of each new worker increases the marginal product of labor. Eventually the marginal product of labor decreases with the addition of new workers and the per unit cost of production then begins to increase.
Question 1.2
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Correct! To produce 19 engines, the firm is operating at a point just to the left of Y. The lowest per unit cost of production is on curve ATCSR,20, at approximately $9. Above that, on the ATCSR,10 curve, the per unit cost is approximately $12 per engine. Finally, above that, on the ATCSR,30 curve, the per unit cost is approximately $13. Given these three short run average total cost curves, the firm can produce 19 engines most cheaply by operating on ATCSR,20.
Incorrect! To produce 19 engines, the firm is operating at a point just to the left of Y. The lowest per unit cost of production is on curve ATCSR,20, at approximately $9. Above that, on the ATCSR,10 curve, the per unit cost is approximately $12 per engine. Finally, above that, on the ATCSR,30 curve, the per unit cost is approximately $13. Given these three short run average total cost curves, the firm can produce 19 engines most cheaply by operating on ATCSR,20.
Question 1.3
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Correct! The envelope curve, ATCLR, is the collection of points that represent the lowest per unit cost of production for each level of output. They correspond to points on the short run average total cost curves, but they are not the minimum points of these curves. For example, points X and Z are on individual short run average total cost curves, but they are not the minimum points of these curves. Only point Y is the minimum of ATCSR,20. Point Y is also the minimum of the long run average total cost curve.
Incorrect. The envelope curve, ATCLR, is the collection of points that represent the lowest per unit cost of production for each level of output. They correspond to points on the short run average total cost curves, but they are not the minimum points of these curves. For example, points X and Z are on individual short run average total cost curves, but they are not the minimum points of these curves. Only point Y is the minimum of ATCSR,20. Point Y is also the minimum of the long run average total cost curve.