Answer to Question #263864 in Microeconomics for ken

Question

1.What three decisions are made by profit maximizing firms?

2.Differentiate profits from economic costs.

3.What is the most important opportunity cost included in economic costs?

4.Differentiate long run and short run decisions made by firms.

5.Differentiate production process from production function; marginal product and the law of diminishing returns; fixed costs and variable costs.

6.How does the firm goes about determining how much output to produce?

Answer 1

(1)

• How much output to supply.
• Which production technology to use.
• How much of each input to demand.

(2)

Economic profit is given by revenue minus opportunity and monetary costs. Accounting profit is given by total monetary revenue minus total costs.

On the other hand, economic costs are a combination of losses of any goods that have a value attached to them by any one individual. They include implicit and explicit costs, fixed costs and variable costs, marginal costs.

(3)

Implicit cost is the most important opportunity cost included in the economic costs because it helps mangers to make effective decisions for the company.

(4)

long-run

• This is the planning and implementation stage for producers.
• They analyze the current and projected State of the market in order to make production decisions.
• Examples of long run decisions that impact a firm's costs include: changing the quantity of production, decreasing or expanding a company, leaving or entering a market.

short run

• In the short run, variables do not always adjust due to condensed period of time.
• Decision that a firm should make in the short run in order to become successful is setting of realistic long-run cost expectations. How short run costs are handled will determine if the firm meets its future production and financial goods.

(5)

• Production function relates to the physical output of a production process, that is , how much output will be produced by a given combination of factors of production. On the other hand, production process is a method of employing economic resources e.g. labor, capital to provide goods and services to consumers.
• Marginal product refers to the extra output or return yield per unit by advantages from production inputs, while the law of diminishing returns states that adding an additional factor of production results in lower increases in output.
• Fixed costs are expenses which remain constant for a period of time irregardless of the level of outputs, whereas variable costs are expenses that change directly and proportionally to the changes in level business activity.

(6)

A firm determines how much output to produce on the basis of its total revenue and total costs curve.