Economics: Costs
1. What is
the difference between diminishing returns and decreasing returns to scale?
What kind of returns to scale are possible/observed in your organization? Why?
What is the relationship between returns to scale and cost curves? Can you
assess the shape of the long-run average cost curve for your organization? You
do not need to estimate the cost function, merely, on the basis of your
knowledge of your firm, what do you think the curve looks like and why?
2. What are
the production costs for your organization? What are the fixed costs? The
variable costs? What economic costs does your firm likely overlook when
computing its “profits”? Explain the profit maximizing condition in
terms of your organization. If you work for a “nonprofit” firm, what
do you think is the appropriate level of output for your firm? Why?
3. With the
popularity of new high protein diets like the Atkins diet (which encourage
larger consumption of meat products at the expense of carbohydrates and
sugars), what kind of effect do you expect to see on the equilibrium price and
quantity of meat. Explain your answer in terms of shifts in demand and supply
of meat and meat products.
