answers 5 - ECON-314, Fall 2010 Answers to ECON-314-03/04...

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ECON-314, Fall 2010 Answers to ECON-314-03/04 Assignment 5 1. DMR is a short-run property of a production function and states that if a firm keeps increasing one variable input while holding other inputs and technology constant, the MP of the variable input becomes smaller and smaller after some point. The DRS is a long-run property of a production function and states that if all inputs increases by 1%, the output increases by less than 1%. 2. There are three main reasons for why a firm’s long-run (LR) cost is always no more than its short-run (SR) cost: (i) in the LR, a firm can adjust all inputs so that each input is at its optimal level in terms of cost minimization; (ii) in the LR, technological innovation is possible so that more cost-efficient production technology can be adopted in the LR; and (iii) in the LR, Learning-by-doing also makes employees work more efficiently. 3. A typical firm's LR AC curve is usually U-shaped, because when all inputs are increased in proportion, output increases: (i) more than in proportion (that is,
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This note was uploaded on 03/17/2012 for the course ECON 314 taught by Professor Qian during the Spring '10 term at Saint Louis.

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answers 5 - ECON-314, Fall 2010 Answers to ECON-314-03/04...

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