Scribd Logo
Upload

Welcome to Scribd!

  • 178 views

    Explain How Isoquant Curves and Isocost Lines Determine The Producer's Equilibrium Using Graphs

    Uploaded by

    Carlos Lois Sebastian
    The document discusses several economic concepts: 1) It differentiates between explicit costs (measurable expenditures) and implicit costs (opportunity costs like self-produced resources) with examples. 2) It explains how producer equilibrium is determined by the point of tangency between isoquant curves (combinations of inputs at a given output) and isocost lines (combinations affordable with a given budget) using graphs. 3) It defines the law of diminishing returns and how average, marginal, and total product change with additional inputs, and explains returns to scale in long-run production.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Explain How Isoquant Curves and Isocost Lines Determine The Producer's Equilibrium Using Graphs

    Uploaded by

    Carlos Lois Sebastian
    178 views6 pages
    The document discusses several economic concepts: 1) It differentiates between explicit costs (measurable expenditures) and implicit costs (opportunity costs like self-produced resources) with examples. 2) It explains how producer equilibrium is determined by the point of tangency between isoquant curves (combinations of inputs at a given output) and isocost lines (combinations affordable with a given budget) using graphs. 3) It defines the law of diminishing returns and how average, marginal, and total product change with additional inputs, and explains returns to scale in long-run production.

    Original Title

    Untitled

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses several economic concepts: 1) It differentiates between explicit costs (measurable expenditures) and implicit costs (opportunity costs like self-produced resources) with examples. 2) It explains how producer equilibrium is determined by the point of tangency between isoquant curves (combinations of inputs at a given output) and isocost lines (combinations affordable with a given budget) using graphs. 3) It defines the law of diminishing returns and how average, marginal, and total product change with additional inputs, and explains returns to scale in long-run production.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    178 views6 pages

    Explain How Isoquant Curves and Isocost Lines Determine The Producer's Equilibrium Using Graphs

    Uploaded by

    Carlos Lois Sebastian
    The document discusses several economic concepts: 1) It differentiates between explicit costs (measurable expenditures) and implicit costs (opportunity costs like self-produced resources) with examples. 2) It explains how producer equilibrium is determined by the point of tangency between isoquant curves (combinations of inputs at a given output) and isocost lines (combinations affordable with a given budget) using graphs. 3) It defines the law of diminishing returns and how average, marginal, and total product change with additional inputs, and explains returns to scale in long-run production.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    Activity No.

    5
    1. Differentiate implicit and explicit costs by citing examples.
    As discussed during our discussion in the Introduction of Economics, the explicit
    cost is a cost that has measurable cost to a firm. The explicit costs revolve around the
    actual expenditures. On the other hand, the implicit cost is the cost of self-produced
    resources.
    As accounting students, explicit costs are the expenses we usually encounter on
    the trial balance. An example of explicit cost is an electric bill (utility expense), advertising
    in the newspaper (advertising expense), and rent of the factory used in production (rent
    expense).
    On the contrary, the implicit cost is what we know as the opportunity cost. It is the
    value of the foregone opportunity. It is hard to anticipate and does not require an outflow
    of cash. An example of implicit costs is the capital invested and payment to employees
    who were taking a day off.

    2. Explain how isoquant curves and isocost lines determine the producer's
    equilibrium using graphs.

    The graph above shows the isoquant curve. It represents combinations of input
    in the same level of output.

    The second graph represents the isocost line. It represents a different


    combination of inputs that the same budget can purchase.
    These two graphs are vital in determining the producer’s equilibrium. In its general
    sense, the producer’s equilibrium will be determined by finding the point of tangency
    (point where they meet) of the isocost line and cure. The two graphs are important in
    determining the point of tangency because the isocost line and curve quantify
    combinations that can possibly become show the point where the producer can produce
    his maximum production.
    In the Graphical illustration of Producer’s equilibrium below, the producer’s
    equilibrium will be able to achieve when we employ 25 units of capital and 15 units of
    labor. Moreover, there should be a table representing the isocost curve.
    3. Explain the Law of Diminishing Returns and Returns to Scale.

    Law of Diminishing Marginal Returns


    The Law of Diminishing Return States that every successive unit of variable input
    combined with fixed units increases the Total Output (TP) but declines at some point.
    Before we begin its process, let us start first with the terminologies.
    Total Output – is the total physical product produced
    Marginal Product – mean s the increase in an output adding another unit. An example
    is adding a new worker.
    Average Product (AP) – is the output produce per unit.

    The table above shows the three levels of production. In stage 1 (represented by
    color red), we can see that: TP is increasing, AP and MP are still increasing, AP>MP, and
    the value of MP is positive. In stage 2 (represented by color green), we can see that: TP
    is increasing, AP and MP are decreasing, AP>MP, and MP is still in positive. As
    mentioned earlier, the TP will increase and then eventually will decline. In stage 3
    (represented by color blue), TP starts to decrease, AP and MP are decreasing, AP>MP,
    and MP is not in its positive rate.
    Moreover, the table shows different boundaries (represented by color yellow) to
    represent the distinguishment of the stages, the first boundary shows AP is at its
    maximum and AP=MP while the second boundary shows that TP is at its maximum and
    MP=0. The graph below represents the curve of Law of Diminshing Marginal return.

    Scale of Return
    The scale of returns to scale during the long-run analysis of cost. It refers to the
    rate of output changes if all inputs are in the same factor. This can always be found in the
    lowest point of the short-run average total cost. The long-run analysis is the period by
    which all factors or resources can be used as a variable.
    This economic phenomenon happens when the level of the firm increases, causing
    to the specialization of workers.
    The scale of return has a U-shaped slope. It has three types: increasing returns to
    scale or economies of scale, the constant return to scale, and decreasing return to scale.
    Increasing returns to scale or economies of scale happens when there is an
    increase in the scale of production. This increase will lead to a lower average cost causing
    ATC to slope downward.
    The constant return to scale happens when there is an increase in production
    while the average cost remains constant.
    Decreasing return to scale or diseconomies of scale happens when there is
    an increase in the scale of production, but it leads to higher average costs.
    4. Differentiate short-run and long-run production.
    There is a big huge difference when it comes to short-run and long-run production
    of costs of production. Short-run production is planning by which we consider resources
    as variable and fixed. As mentioned earlier, long-run analysis is the period by which all
    factors or resources can be used as a variable.
    Comparatively, the formula for computing the variable needed in both types of
    production is the same. However, their graph differs because the short-run (1st graph) has
    fixed resources which means in the graph it has fixed slope.
    The short-run analysis mainly focus on its fixed cost (cost the will not change) and
    variable cost (cost that change as output change). The long-run analysis focuses on the
    variability of costs and its possibilities: scale of return.
    5-6. Computation and Graph.

    Average
    Total Fixed Variable Average Marginal
    Total Cost Variable
    Product Cost Cost Total Cost Cost
    Cost
    0 2000 *** 1. 2000 *** *** ***

    20 2000 4000 2. 6000 3. 200 4. 300 5. 200

    40 2000 6000 6. 8000 7. 150 8. 200 9. 100

    10. 11,000 11. 150 12. 183.33


    60 2000 9000 13. 150
    14. 13,000 15. 137.5 16. 162.5
    80 2000 11000 17. 100
    18. 16,000 19. 140 20. 160
    100 2000 14000 21. 150
    22. 20,000 23. 150 24. 150 25. 200
    120 2000 18000

    350

    300

    250

    200

    150

    100

    50

    0
    1 2 3 4 5 6

    Average Variable Cost Average Total Cost Marginal Cost

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy