Consider Two Firms a and B

question 65

Essay

Consider two firms A and B.Firm A notices that its total costs have declined by 10 percent each time its cumulative output has doubled.Firm B notices that its average cost of production declined by 10 percent after it increased production by 5 percent and hired 50 more workers to work with its existing unused equipments.Explain graphically whether the experiences of these two firms will have similar implications on the long run average cost of production.

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Definitions:

Lump Sum Payment

A single payment made at a particular time, as opposed to multiple payments made over time.

Budget Line

An illustrative chart showing every possible pair of two items that a specific budget and set prices allow to be acquired.

Labor Income

Earnings derived from work or employment, including wages, salaries, bonuses, and other compensation.

Tax Rate

The percentage at which an individual or corporation is taxed, often applied to income or transactions.