HW11: Homework - Ch. 11: Behind the Supply Curve: Inputs and Costs

Candice is a jewelry shop owner, specializing in beaded necklaces. For each of the following inputs, indicate which items are variable inputs as opposed to fixed inputs in the long run. Variable inputs include

shipping, two-year lease on office and retail space, upper management salaries, computers, hourly labor, beads, chairs

Suppose Ralph has a chicken processing plant with the total cost function shown in the accopmanying table. Quantity ofChickensTotal Cost ($)08001,0001,0002,0001,2003,0001,4004,0001,5005,0001,6006,0001,8007,0002,0008,0002,400 What is Ralph's fixed cost? Ralph's fixed cost: $ _________ Ralph pays his workers $100$100 each, and labor is the only variable cost. At a quantity of 30003000 chickens, how many workers does he hire? number of workers Ralph hires: ___________ Why does total cost increase faster as output increases?

800 Total Cost = Fixed Cost + Variable Cost $1400 = $800 + $100 x number of workers $600 = $100 x number of workers Number of workers Ralph hires = 6 There are diminishing returns to labor.

In the accompanying graph, place point A along the portion of the LRATC curve where a firm experiences economies of scale point B along the portion of the LRATC curve where a firm experiences constant returns to scale point C along the portion of the LRATC curve where a firm experiences diseconomies of scale

A, B, C

Consider the table, which contains hypothetical data on the long‑run average cost values for the refrigerator industry. Quantity producedLong‑run average costA10,000$1,200B20,000$900C30,000$700D40,000$700E50,000$800F60,000$1,000 Economies of scale begin at ______ and end at _______ . Constant retrurns to scale begin at ________ and end at ________ . Diseconomies of scale begin at ________ and end at ________ .

A, C C, D D, F

Consider the table. Labor (hours)QuantityFixedCost ($)Variable Cost ($)Total Cost ($)Marginal Cost ($)Average Cost ($)AVC* ($)0010,000010,000---401810,0005,00015,000CF277.78504510,00010,000B185.19444.44222.22606510,00015,00025,000250.00384.62230.77707810,000A30,000DG256.41808810,00025,00035,000500.00397.73284.09909410,00030,00040,000E425.53H *Average Variable Cost The table shows the cost structure of a firm producing computer mainframes. Calculate the missing values A through H and enter these into the boxes provided. A: ______________ B: _______________ C: ______________ D: _______________ E: ______________ F: _______________ G: ______________ H: _______________

A: 20000 B: 20000 C: 277.78 D: 384.16 E: 833.33 F: 833.33 G: 384.62 H: 319.15

Babel, an architectural firm, is aspiring to build the world's largest tower. The table provides Babel's production function. On the first graph, graph Babel's production function. On the second graph, plot the marginal product of labor for Babel. Quantity of workersQuantity of bricks laid (thousands)00001144227733994410

Babel's production function: (0, 0), (1,4), (2, 7), (3, 9), (4, 10) Babel's marginal product of labor: (1, 4), (2, 3), (3, 2), (4, 1)

Which of the statements is not true? What is the marginal cost of the fourth unit based on the table? Output012345678910Total cost100110115125140160190230280340420 marginal cost: $ ___________

Costs that are small and unimportant with little impact on profits are called marginal costs. Marginal Cost: ∆TC / ∆QMarginal Cost: (140 - 125) / (4 - 3) = 15

The graph shows the costs of a firm in the short run. Match the labels to the curves they best represent. Note that not all labels will be used.

Dark Blue = average total cost Red = marginal cost Light Blue = average variable cost

Each graph illustrates three short-run cost curves for firms, where ATC is average total cost (also referred to as average cost), MC is marginal cost, and AVC is average variable cost. Please classify each of the graphs as valid or invalid based on what you know about the relationships between these curves. Graph A is _________ . Graph B is _________ . Graph C is _________ . Graph D is _________ . Graph E is _________ . Graph F is _________ .

Graph A is invalid Graph B is valid Graph C is invalid Graph D is invalid Graph E is invalid Graph F is valid

Earl owns and operates a food trailer at the State Fair. After being featured on a national televison network, his deep‑fried cupcakes dramatically increase in popularity, and Earl hires more workers at a cost of $80 per worker per day. Earl also pays $40 per day just to park his trailer, even if he has no workers. The table shows the number of workers and the number of cupcakes that they can produce in a day. On the first graph, plot Earl's production function per day. Quantity of workersQuantity of cupcakes (in dozens)0016215324427530630 On the second graph, chart Earl's total‑cost curve per day.

Production function: (0, 0), (1, 6), (2, 15), (3, 24), (4, 27), (5, 30), (6, 30) Total cost: (0, 40), (6, 120), (15, 200), (24, 280), (27, 360), (30, 440), (30, 520)

Classify each statement or equation according to whether it describes average variable cost, marginal cost, or average (total) cost. (TC is total cost; VC is variable cost; Q is quantity.) a. ΔTC/ΔQ: b. The amount by which total cost increases when an additional unit is produced: ______________ c. TC/Q: ___________ d. The total cost divided by the quantity of output: __________________ e. The change in total cost divided by the change in output: _______________ f. VC/Q: g. The sum of all costs that change as output changes divided by the number of units produced:

a. Marginal cost b. Marginal cost c. Average (total) cost d. Average (total) cost e. Marginal cost f. Average variable cost g. Average variable cost

Determine if the statements and expressions regarding costs are true or false. a. All costs are either fixed or variable. b. Average fixed cost is always higher than average variable cost. c. The average fixed cost curve is downward-sloping. d. In the short run, ATC is always greater than or equal to AVC. e. The ATC curve crosses the MC curve at the lowest point on the MC curve. f. ATC = (FC+VC)/Q g. The ATC is increasing whenever the MC is increasing. h. Marginal cost refers to the change in total cost associated with the production of another unit. i. The VC curve is modeled as a horizontal line. j. TC = FC + VC + MC

a. True b. False c. True d. True e. False f. True g. False h. True i. False j. False

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. a. Postage and packaging costs: _________ . b. Lease on building: _______. c. Cost of wood used in manufacturing: ____________ . d. Industrial equipment costs: ________________ . e. Interest on current debt: ____________ . f. Liability insurance costs: ___________ . g. Cost of metal used in manufacturing: ___________ . h. Annual salaries of top management: ___________ .

a. variable cost b. fixed cost c. variable cost d. fixed cost e. fixed cost f. fixed cost g. variable cost h. fixed cost

The long run is best defined as a time period One thing that distinguishes the short run and the long run is

during which all inputs can be varied. the existence of at least one fixed input.

A firm's ___________________ are costs that increase as quantity produced increases. These costs often show ___________________ illustrated by the increasingly steeper slope of the total cost curve. A firm's ___________________ are costs that are incurred even if there is no output. In the short run, these costs ___________________ as production increases.

variable costs; diminishing marginal returns fixed costs; do not change