Question
Assume that a firm's long run production function is given by the equation below. Q=10(sqrt(K 3 L 3 )) (where Q = output, K =
Assume that a firm's long run production function is given by the equation below.
Q=10(sqrt(K3L3)) (where Q = output, K = capital, L = labor)
Using the definitions associated with each different type of returns to scale, which of the following would be a correct statement about the returns to scale that this firm possesses:
a. | this firm has constant returns to scale | |
b. | this firm has decreasing returns to scale | |
c. | this firm has increasing returns to scale | |
d. | none of the above |
Assume that a market experiences decreasing costs over the long run. If the market experienced a permanent increase in demand which increased the market price above the average cost of each firm, then how would this market adjust over the long run:
a. | new firms enter the market, market supply will shift right and prices will fall until all firms are earning economic profits of zero | |
b. | existing firms exit the market, market supply will shift right and prices will fall until all firms are earning economic profits of zero | |
c. | new firms enter the market, market supply will shift left and prices will rise until all firms are earning economic profits of zero | |
d. | existing firms exit the market, market supply will shift left and prices will rise until all firms are earning economic profits of zero |
Assume that a perfectly competitive firm has the following costs:
TC = $500 | if q = 0 |
TC = 2q2+ 20q + 600 | if q > 0 |
MC = 4q + 20 | if q > 0 |
(q = output, TC = total costs, MC = marginal costs)
If the market price is currently equal to $60.00 (i.e. P = 60), and demand within the market is expected to remain unchanged (i.e. firms expect that the conditions which led to P = 60 are a permanent or long run change). Given the level of profit that this firm would earn in the short run, and that the demand which led to that profit level is expected to remain unchanged, predict how this market should change or adapt over the long run?
a. | there will be no changes in this market over the long run | |
b. | firms in this market will shut down in the long run | |
c. | existing firms in this market will either contract or exit the market in the long run | |
d. | existing firms in this market will expand or new firms will enter this market in the long run | |
e. | both b and c will occur in the long run |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started