Econ Test 3
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.
$126
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?
$35
How to calculate average variable cost
Total Variable Costs / Total Output (Q)
Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate's marginal product?
15 pieces of pottery
How to calculate average fixed cost
Average Total Cost - Average Variable Cost
How to calculate marginal cost
Change in total cost / Change in total output
How to calculate average total cost
Total Cost / Quantity
What represents the firm's long run condition for exiting a market
exit if P<ATC
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium
A long-run supply curve is flatter than a short-run supply curve because
firms can enter and exit a market more easily in the long run than in the short run
Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers
labor to be variable and capital to be fixed
When fixed costs are ignored because they are irrelevant to a business's production decision, they are called
sunk costs
When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because
the marginal cost curve determines the quantity of output the firm is willing to supply at any price
The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average
total cost