# lab 6 - Econ 203 lab 6 Page 1 November 1-5, 2010 Economics...

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Econ 203 lab 6 Page 1 November 1-5, 2010 Economics 203: Intermediate Microeconomics I Lab Exercise #6 Section 1: Test Your Understanding True or False? 1) One of the principal determinants of the shape of the long-run average cost function is the law of diminishing marginal returns 2) In the long run a firm’s fixed costs in industries like steel and autos may amount to tens of millions of dollars per year. 3) When a firm is experiencing diminishing marginal returns to its variable input, there must be decreasing returns to scale. Section 2: Discussion: Explain the why the short-run minimum cost of producing a certain output may differ from the long-run minimum cost. Illustrate your explanation with a diagram. Section 3: Applications 1) For the Bridges-to-Shores Corporation , the relationship between output (Q) and the number of hours of specialized manual labour (S) and machine-operated labour (M) is: Q=650S +145M - 0.45 S 2 - 0.6 5M 2 The hourly wage of specialised manual labour is \$42, and the hourly wage of machine-operated labour is \$25. The firm can hire as much labour as it wants at these wage rates. A) The vice president of manufacturing recommends that the firm hire 50 hours of manual labour and 95 hours of machine-operated labour. Evaluate this recommendation.

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## This note was uploaded on 08/03/2011 for the course ECON 203 taught by Professor Okhan during the Spring '11 term at University of Victoria.

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lab 6 - Econ 203 lab 6 Page 1 November 1-5, 2010 Economics...

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