Authors libby rittenberg 454

To produce 9 jackets, Acme uses 4 units of labor.. In the long run, Acme will substitute capital for labor.. It cannot make this adjustment in the short run, because its capital is fixed

Attributed to Libby Rittenberg and Timothy Tregarthen Saylor.org

ANSWERS TO TRY IT! PROBLEMS

1 To produce 9 jackets, Acme uses 4 units of labor

2 In the long run, Acme will substitute capital for labor It cannot make

this adjustment in the short run, because its capital is fixed in the

short run

[1] Lucinda Vargas, “Maquiladoras: Impact on Texas Border Cities,” in The

Border Economy, Federal Reserve Bank of Dallas (June 2001): 25–29; William

C Gruben, “Have Mexico’s Maquiladoras Bottomed Out?”, Southwest

Economy, Federal Reserve Bank of Dallas (January/February, 2004), pp 14–15

8.3 Review and Practice

Summary

In this chapter we have concentrated on the production and cost

relationships facing firms in the short run and in the long run

In the short run, a firm has at least one factor of production that it cannot

vary This fixed factor limits the firm’s range of factor choices As a firm

uses more and more of a variable factor (with fixed quantities of other

factors of production), it is likely to experience at first increasing, then

diminishing, then negative marginal returns Thus, the short-run total cost

curve has a positive value at a zero level of output (the firm’s total fixed

cost), then slopes upward at a decreasing rate (the range of increasing

marginal returns), and then slopes upward at an increasing rate (the range

of diminishing marginal returns)