An increase in license fees — a long run recurring fixed cost — will lead to a drop in the number of firms competing in a competitive industry.
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A drop in output demand accompanied by a simultaneous drop in output supply will cause the output price to fall.
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If all firms are identical, output demand shifts cannot cause changes in output price in the long run.
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An increase in labor demand accompanied by a decline in labor supply cannot result in a decline in wages.
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The reason long run market supply curves are shallower than short run market supply curves is because individual firm supply curves are shallower in the long run than in the short run.
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Short run market supply curves are formed by adding up individual firm supply curves in the industry.
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Suppose GE produces 1 million light bulbs per month While labor is variable both in the short run and the long run, capital is fixed in the short run. Labor is sold at a rate w and capital is rented at a rate r.
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Suppose there are different ways of producing computer chips. If you hire one worker (for the day) for each machine that you rent (for the day), you can produce 10 chips per day with each worker/machine pair for the first 60 machine/worker pairs. For the next 60 worker/machine pairs (assuming still that you hire them as pairs for the day), you are able to produce 20 chips per day with each of the additional pairs. Once you have 120 worker/machine pairs, you can only get 5 additional chips per day for each additional pair. But hiring 1 worker for each machine is not the only way to produce computer chips. Suppose you are starting from a production plan where you are using exactly as many workers as machines to produce a given level of chips. The technology is such that, starting at the production plan where you are using the same number of workers as machines, you can replace 1 or more workers with two machines (for each worker) and get just as many chips produced. Alternatively (and again starting at the production plan where you use exactly as many workers as machines), you can replace 1 or more machines with 2 workers (for each machine) and get just as many chips produced. Suppose the daily wage and rental rate are both equal to $100 and the firm currently has 120 units of capital.
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After a firm makes both short and long run adjustments to its production plan following an increase in the output price,
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After a firm makes both short and long run adjustments in its production plan following a reduction in the wage,
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Which of the following are true in a graph of isoquants (with capital on the vertical and labor on the horizontal) assuming a given wage and rental rate.
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The parameter A re-scales the production function — allowing us to transform a decreasing returns to scale production function to an increasing returns to scale production function.
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