Week 10: Ch. 11 producers
describe costs in the long run
- all costs are variable - diminishing marginal returns for labor and capital
Technology Efficiency - assuming that other factors are held constant
- called factor's product each factor of production contributes to output
(tech efficiency) three types of product
- total product - avg product - marginal product
31 The table shows the production function of Bonnie's Balloon Rides. Bonnie's pays $500 a day for each balloon it rents and $25 a day for each balloon operator it hires. On Bonnie's LRAC curve, what is the average cost of producing (i) 15 rides a day? (ii) 18 rides a day? Explain how Bonnie's uses its long-run average cost curve to decide how many balloon to rent.
1. 97.22 avg cost of 18 rides/ day 2. 100 avg cost of 15 rides/ day 3. the number of balloons to rent that minimizes average total cost
25 In the figure, the minimum efficient scale of output is
10,000 pounds of coffee
15 The above (incomplete) table provides information about the relationships between output and various cost measures. The total cost (TC) of producing 9 units of output is
190
28 Sue's Surfboards can operate with one plant or two plants. The graph shows the average total cost curve, ATC1 for one plant and the average total cost curve, ATC2 for two plants. To produce 180 surfboards a week, is it is efficient to operate with one or two plants? To produce 160 surfboards a week, is it is efficient to operate with one or two plants?
1;1
(11) The firm rents the sewing machine for $10 a day and pays its workers $15 a day. What is the average fixed cost of producing 4 pairs of jeans?
2.50
(9) What is the total fixed cost and what is the marginal cost of increasing production from 10 to 12 T-shirts?
20;8
(29) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost, $280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week. Suppose Silvio's uses Plant 2. The firm's average total cost is minimized when ________ pizzas per week are produced. What is Silvio's longminus−run average cost if the output is 100 pizzas per week?
220 ??
22 Dustin's copy shop can use four alternative plants. The figure shows the average total cost curves for Plant 1 (ATC1), Plant 2 (ATC2), Plant 3 (ATC3), and Plant 4 (ATC4).What is Dustin's longminus−run average cost if the output is 3,000 copies per day?
3.7 cents per copy
17 In the figure, when 40 units are produced the average fixed cost is
4
When Sam increases smoothie production from 4 gallons to 5 gallons, his total cost of production increases from $32.50 to $36.85. Calculate Sam's marginal cost of producing smoothies.
4.35
12 The firm rents the sewing machine for $25 a day and pays its workers $30 a day. What is the average variable cost of producing 21 pairs of jeans?
7.14
(5) If Flora's increases the number of workers hired from 2 to 3, what is the marginal product of labor? If Flora's increases the number of workers hired from 3 to 4, what is the marginal product of labor?
70; 40
(6) When the firm produces 16 pairs of jeans, what is the average product of labor?
8 pairs of jeans per worker
Constant returns to scale means that as all inputs are increased, A. total output increases in the same proportion as do the inputs. Your answer is correct. B. average total cost rises at the same rate as do the inputs. C. average total cost rises. D. total output remains constant.
A
If Dell Computer Company could produce more computers at lower longminus−run average cost by increasing the quantity of all the inputs it uses, Dell definitely would experience A. economies of scale. This is the correct answer. B. increasing marginal returns. C. decreasing marginal returns. Your answer is not correct. D. diseconomies of scale.
A
average cost equation
ATC = TC/Q ATC = AFC + AVC
Choose the correct statement. A. A firm's minimum efficient scale increases when the number of people employed increases. B. A firm's minimum efficient scale is the smallest quantity of output at which long-run average cost reaches its lowest level. Your answer is correct. C. At outputs less than the minimum efficient scale, a firm experiences diseconomies of scale. D. At outputs greater than the minimum efficient scale, a firm experiences economies of scale.
B
24 The cost data in the above table data show that production is characterized by A. decreasing returns to scale. B. constant returns to scale. C. economies of scale. Your answer is correct. D. More information is needed to answer the question.
C
Which of the following are examples of short run and long run decisions? A. Olive Garden has increased its plant size. Olive Garden has opened two new restaurants in Ames. B. The profits of Dell has improved this quarter. Consumers' preferences for Dell laptops have changed over time. C. Starbucks' has hired more labor to meet the increasing demand. Starbucks' has opened another store to meet the increasing demand. D. LG has adopted a new technology to create a new cell phone. The sale of LG phones has increased.
C
13 ProPainters hires students at $250 a week to paint houses. It leases equipment at $500 a week. The table sets out its total product schedule. If ProPainters paints 14 houses a week, calculate its total cost, average total cost, and marginal cost. At what output is average total cost a minimum?
If ProPainters paints 14 houses a week, total cost is 1750 and average total cost is 125. marginal cost of increasing the number of houses from 12-14 is 125 the output at which avg total cost is a min is 13 houses a week
Which of the following illustrates economies of scale, diseconomies of scale, and constant returns to scale? Liza's average total cost changes from $4.50 to $2.20 when she increases salad production from 7 to 9 an hour. Sam's average total cost changes from $1.30 to $2.80 when he increases smoothie production from 5 to 8 gallons an hour. Tina's average total cost remains at $3 when she increases pizza production from 12 to 13 an hour.
Liza faces economies of scale; Sam faces diseconomies of scale; Tina faces constant returns to scale.
marginal cost equation
MC = Change in total cost/change in quantity
total cost equation
TC = TFC + TVC
ATC and AVC are what shape
U shaped
long run factors of production
all factors are variable
law of diminishing returns
as a firm uses more of a variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes
16 In the figure, as output increases, the distance between curves B and C decreases because
avg fixed cost dec as output inc
19 In the figure, the intersection of curves A and C is the point at which
avg variable cost is minimized
marginal product =
change in output for additional unit of input (up then down)
AFC is always _______ as output __________
declining; increases
when marginal product is below average product, average product
decreases
If diseconomies of scale are present and the firm ______ all its inputs, its output _______.
doubles; less than doubles
fixed or variable factors of production
fixed factors - do not change with output variable factors - change with output
when marginal product is above average product, average product
increases
factors of production
land (T), Labor (L), Capital (K)
(tech efficiency) short run technology constraint
law of diminishing marginal returns
18 In the figure, when 20 units are produced the marginal cost is
less than 8$
(10) The firm rents the sewing machine for $15 a day and pays its workers $30 a day. When the firm increases production from 20 to 21pairs of jeans a day, what is marginal cost?
marginal cost is 30 with increase in jean production
Which of the following factors is fixed in the long run? - entrepreneurship - capital - land - non of the above b/c all of the factors are variable in the long run
none of the above
short run factors of production
not all factors are variable
The short run is a period of time in which
the quantities of some resources the firm uses are fixed.
total product is
total output (increasing)
average product =
total output divided by quantity of input (up then down)
what is avg product equation
total product/ quantity of product
true or false? in the long run all costs are variable costs
true
where is maximum average product on a graph of average product and marginal product ?
where AP and MP intersect