Page 144 - DECO405_MANAGERIAL_ECONOMICS

Unit 8: Cost Analysis

13. Suppose that labour costs 10 per unit and capital costs 5 per unit. The least cost Notes
combinations of capital and labour are as follows:
Output 100 200 300 400 500 600 700
Labour 5 6 8 10 13 18 24
Capital 10 12 14 20 28 38 54
Prepare the table showing long run total cost, long run average cost and long run marginal
cost.
14. If machines were variable and labour fixed, how would the general shapes of the short run
average cost curve and marginal cost curve change?
15. If average productivity falls, will marginal cost necessarily rise? How about average cost?
16. Discuss the concept of economies of scale and economies of scope. Give suitable examples.
17. Examine the relevance of the concept of revenue in break even analysis.

Answers: Self Assessment

1. (a) True (b) False (c) True (d) False
(e) True (f) True (g) False (h) True
2. (a) suspended (b) micro level and macro level
(c) one additional unit (d) declines

(e) accounting system (f) fixed
(g) break even (h) traceable

8.12 Further Readings

Books Curwen, Managerial Economics, Macmillan.

Dr. Atmanand, Managerial Economics, Excel Books, Delhi.
Earl Heady, Economics of Agricultural Production and Resource Use, Prentice Hall.

Online links en.wikipedia.org

http://economicswebinstitute.org/glossary/costs.htm
http://www.referenceforbusiness.com/management/De-Ele/Economies-of-Scale-
and-Economies-of-Scope.html

http://economics.about.com/cs/studentresources/a/short_long_run.htm

LOVELY PROFESSIONAL UNIVERSITY 139