ECO 2023 Chapter 11 Homework
A student looks at the data in the table to the right and draws this conclusion: "The marginal product of labor is increasing for the first 3 workers hired, and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. Then Jill must have had to settle for increasingly poor workers." Do you agree with the student's analysis? Briefly explain
No. Marginal product initially increases due to specialization and then decreases due to the law of diminishing returns.
A firm is able to cut each worker's wage rate by 10 percent and still produce the same level of output.
Not positive technological change
A firm rearranges the layout of its factory and finds that by using its initial set of inputs, it can produce exactly as much as before.
Not positive technological change
If, when a firm doubles all its inputs, its average cost of production increases, then production displays
diseconomies of scale.
Any cost that remains unchanged as output changes represents a firm's
fixed cost
What is likely to happen in the long run to firms that do not reach minimum efficient scale?
will lose money if it remains in business.
Refer to the table to the right which shows cost data for Lotus Lanterns, a producer of whimsical night lights. What is the average variable cost per unit of production when the firm produces 90 lanterns?
$5.40
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total cost per day when she produces 50 gyros using two workers?
$340 VC= (wage rates)(quantity of workers) TC= FC + VC TC= 220 + 120
Suppose the total cost of producing 20,000 tennis balls is $50,000, and the fixed cost is $10,000. What is the variable cost? what is the average variable cost? what is the average fixed cost? Assuming that the cost curves have the usual shape, the dollar difference between average total costs and average variable costs ________ as output increases.
$40,000 $2.00 $0.50 decreases
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 in expenses on equipment and hairdressing material. Based on this information, what is the amount of her explicit costs?
$45,500
If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is
$700
Refer to the diagram to the right. The marginal product of the 3rd worker is
15
If the total cost of producing three units of output is $2454 and the total cost of producing four units of output is $3,194, then the marginal cost of the fourth unit is $ ______
2454-3,194 = $740
Refer to the table to the right which shows the technology of production at the Matsuko's Mushroom Farm for the month of May. Diminishing marginal returns sets in when the ________ worker is hired.
3rd
What is the difference between the average cost of production (ATC) and marginal cost of production (MC)?
ATC = TC/Q MC= ΔTC/ΔQ. TC= total cost Q= output
If marginal cost is above the average variable cost, then average variable cost is decreasing.
False
What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory?
Firms have difficulty coordinating production Firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory. This is because managers have difficulty coordinating production. For example, Henry Ford experienced diseconomies of scale when he opened the very large River Rouge factory.
What is the difference between the short run and the long run?
In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the graph?
The marginal product of labor initially increases due to specialization and then decreases due to diminishing returns Whenever the marginal product of labor is greater than the average product of labor, it pulls the average product of labor up.
Which of the following is an example of a long-run adjustment?
WalMart builds another Supercenter.
Which of the following is true of the relationship between the average product of labor and the marginal product of labor?
Whenever the marginal product of labor is less than the average product of labor, the average product of labor must be decreasing.
Which of the following is most likely to be a fixed cost for a farmer?
Which of the following is most likely to be a fixed cost for a farmer?
Which of the following is the best example of a short-run adjustment?
Your local WalmMart hires two more associates.
Which of the following is an example of positive technological change?
a firm's managers rearrange the layout of a retail store to increase sales
Refer to the diagram to the right. Diminishing returns to labor set in
after L1
Suppose a firm's average total cost curve is decreasing with output. What can be said of its marginal cost curve? The firm's marginal cost curve must be
below the average total cost curve.
Which of the following is most likely to a variable cost for a business firm?
cost of shipping products
Is the amount of time that separates the short run from the long run the same for every firm?
no
Long run costs are U−shaped because
of economies and diseconomies of scale
Which of the following is a fixed cost?
payment to hire a security worker to guard the gate to the factory around the clock
A firm cuts its workforce and is able to maintain its initial level of output.
positive technological change
A training program makes a firm's workers more productive
positive technological change
An exercise program makes a firm's workers more healthy and productive.
positive technological change
Which of the following is an implicit cost of production?
rent that could have been earned on a building owned and used by the firm.
The production function is the relationship between
the inputs employed by a firm and the maximum output it can produce with those inputs.
What is minimum efficient scale?
the level of output at which all economies of scale are exhausted, which occurs when the long-run average cost of production no longer decreases with output.
If the additional output from each new worker is rising,
the marginal cost of that output is rising because the only additional cost to producing more output is the additional wages paid to hire more workers.
What is the difference between total cost and variable cost in the long run?
the total cost of production equals the variable cost of production.
In the long run the relevant cost is total cost.
true
If production displays diseconomies of scale, the long-run average cost curve is
upward sloping.
Any cost that changes as output changes represents a firm's
variable cost
Diseconomies of scale is
when a firm's long-run average costs increase with output.
The marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum because
when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the averge, it pulls the average up