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Apr8-07, 08:35 AM
So I get this problem in my Barron's book:
"With capital fixed at one unit with 1,2,3 units of labor added in equal successive units, production of the output increases from 300 (1 unit) to 350 (2 units) to 375 (3 units). Which is the correct interpretation?
Answer is: This is a long run constant returns to scale.
A) long run increasing returns to scale
B) long run decreasing returns to scale
C) Long run constant returns to scale
D) short run diminishing marginal utility
E) short run increasing marginal utility
But we have +50 marginal output from 1->2, and +25 marginal output from 2->3. Constant returns means costs/output remain the same. But the costs aren't in the question... Am I not inferring something?
MC = AVC and ATC when...
Answer: AVC and ATC insersect MC at its maximum point.
Other sample answers:
A) Marginal cost (MC) intersects AVC and ATC at their maximum points
B) AVC and ATC intersect MC at its maximum point
C) MC intersects AVC and ATC at their minimum points
D) AVC and ATC intersect MC at its minimum point
E) The economy is in the recovery phase of the business cycle
But isn't MC an upwards facing parabola? It doesn't have a max point, does it not?
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