ECON test 4

If the price of output is ​$30​, how many units of output will this firm produce​ (assuming the firm produces in the short​ run, in a competitive​ market)? The firm will produce __ units of output because this is where price equals _______ average fixed cost marginal cost average variable cost . ​(Enter your response as a whole

**phone**

Use the information in the graph to find the values for the following costs at an output level of 600.

**phone**

A​ firm's cost curves are given in the following table. Complete the table. ​(Round your responses to two decimal places

**see phone**

The economic profit for​ Ted's Vintage Threads is ​

-5,000

Diminishing returns occur​ when:

. the marginal product of the variable input decreases when additional units are added to the production process.

An article on cnet.com reported on the findings of the marketing research firm IHS in its investigation of the cost of the components used to produce the 128GB Apple iPad Air 2 model with wifiplus+cellular. The firm found that this iPad model costs​ $358 to​ produce, 57 percent less than its retail price of​ $829. ​Source: Don​ Reisinger, "iPad Air 2 models cost Apple​ $275 to​ $358, teardowns​ reveal," cnet.com​, October​ 29, 2014. Does this mean that Apple is making a profit of​ $471 on each of these iPad Air 2​ models?

. ​No, because the opportunity costs related to the production of the iPad Air 2 must be subtracted from total revenue.

The marginal cost of driving a mile is ​

0.28

Danny has entered a competition in which he must drive from his home town of Charlotte, North Carolina to Washington, D.C.​, a distance of approximately 420 miles. If he arrives in 6 hours​ (an average speed of 70​ mph), he will receive a prize of ​$270. If he arrives in 7 hours​ (an average speed of 60​ mph), he receives ​$250. One of the competition rules is he must pay for his own​ gasoline, and DannyDanny has calculated that he will average 24 miles per gallon at 70 mph and 30 miles per gallon at 60 mph. To maximize his winnings​ (prize money minus the cost of​ gasoline), at what speed should Danny drive if the price of gasoline is $4.00 per​ gallon? Danny should drive at _ miles per hour

70

​Alternatively, if the price of gasoline is $$5.00 per​ gallon, then Danny should drive at _ miles per hour

70

Other than maximizing​ winnings, are there any other considerations DannyDanny should take into account when deciding on how fast to​ drive?

A,C, and D. not No, the only relevant consideration is the money

Ben is earning an excess profit of

$1,050,000

The opportunity cost of​ Ben's capital is

$350,000

Does this graph exhibit diminishing​ returns? Explain your answer.

**SEE GRAPH** ​Yes, it does exhibit diminishing​ returns, because the marginal product of labor decreases.

Suppose that the marginal cost of the print version of The Fault in Our Stars is ​$2.002.00 per book and is the same for each book up to 20 million copies. Assume that this includes all variable costs. Explain why in this case marginal cost​ (MC​) is a horizontal​ line, as is average variable cost​ (AVC​). Marginal cost and variable cost are horizontal lines because these costs are

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The following table shows the variable capital and labor requirements for 10 different levels of production. Assuming that the price of labor ​(Upper P Subscript Upper LPL​) is ​$66 per unit and the price of capital ​(Upper P Subscript Upper KPK​) is ​$99 per​ unit, compute and graph total variable​ cost, marginal​ cost, and average variable cost for the firm. To do​ this, fill in the total variable cost for each output level in the table below. ​(Enter your responses as whole numbers.​)

**all on phone**

Suppose that widgets can be produced using two different production​ techniques, A and B. The following table provides the total input requirements for each of five different total output levels.

**check phone**

Which of the following is true regarding the relationship between marginal cost and average variable​ cost?

**check problem** The average variable cost of production is initially decreasing with output but eventually increases.

Suppose the firm is operating in a​ high-wage country, where capital cost is ​$80 per unit per day and labor cost is ​$60 per worker per day. For each level of​ output, which technology is​ cheapest?

**on phone**

​1.) Using the multipoint curve drawing​ tool, draw a graph showing the total product​ (TP), marginal product of labor​ (MP), and average product of labor​ (AP). ​2.) Using the point drawing​ tool, identify where increasing​ returns, diminishing​ returns, and negative returns set in on the total product curve. Plot 3 separate points.

**on phone**

Fill in the columns in the following table. ​(Enter your responses as whole numbers.​)

**phone**

One of the reasons for substituting capital for land near the center of a city is that land is more expensive near the center. What is true about the relative supply of land near the center of a​ city? ​(​Hint: Consider the formula for the area of a​ circle.)

It's smaller. The area of land increases with the square of distance from the center. AND ​It's smaller. If a city grows from a radius of 1 mile to a radius of 5​ miles, the new area is 25 times as large as the original.

0,100 - 10,000 100,300-15,000

MP 1 at 100, 100 MP 2 at 25, 100-300

Assume that we have a production process that exhibits increasing and then decreasing marginal productivity. That​ is, as we increase​ output, the marginal product of labor starts at some level above​ zero, rises to a​ maximum, and then eventually falls to zero. Determine whether the following statement is​ true: nbsp Marginal product and average product are equal when marginal product is at its maximum.

This statement is false.

Why do they choose a day like Thursday rather than​ Saturday? Museums typically have few visitors on ______ ​; just the​ opposite, visitors are more likely to be willing to pay for admission on ______ .

Thursday, Saturday

As factors of​ production, capital and labor can complement each other as well as substitute for each other.

True

Firms will continue to produce as long as marginal revenue exceeds marginal cos

True

In​ general, additional capital increases the productivity of labor

True

The long run is a time period for which there are no fixed factors of production.

True

The normal rate of return on capital is the opportunity cost of capital.

True

In deciding whether to drive from Atlanta to Las Vegas​ (about 2,000 miles​ round-trip) to visit a​ friend, which costs would you​ consider? Why?

Variable​ costs, because they will increase with each mile driven.

Suppose that in​ 2015, you inherited from your grandfather a small planetarium that had been closed for several years. Your planetarium has a maximum capacity of 75 people and all the equipment is in working order. You decide to reopen the planetarium on the weekends as a new​ laser-tag venture called Shoot for the​ Stars, and much to your delight it has become an instant​ success, with admission tickets selling out quickly for each day you are open. What decision must you make in the short runshort run​?

What days to be open.

During the early phases of​ industrialization, the number of people engaged in agriculture usually drops​ sharply, even as agricultural output is growing. Given what you know about production technology and production​ functions, explain this seeming inconsistency. Output increases with less labor​ because:

added capital increases the productivity of labor.

Explain how the following event would affect the cost curves. A company signs a new 3 minus year contract with its landlord comma which lowers its monthly rent by 10 percent.

Marginal cost, average variable cost, and average total cost will decrease. Average fixed cost will not change.

After working for 25 years as personal fitness trainers while raising their​ kids, three sisters cashed in a total of ​$80,000 in bonds and decided to open a​ small, neighborhood fitness center. They spent the ​$80,000 on exercise​ equipment, advertising, computer​ equipment, and other furnishings for the business. For the next 3​ years, they took in ​$130,000 in revenue each​ year, paid themselves ​$20,000 annually​ each, and rented a space in a strip mall for ​$27,000 per year. Before the​ investment, their ​$80,000 in bonds were earning interest at a rate of 14 percent. Are they now earning economic​ profits? Explain​ your answer.

They are earning profits of ​$31,800​, which takes into account the ​$11,200 opportunity cost of their capital and the ​$60,000 combined opportunity cost of their own labor.

Using the numbers​ above, explain the meaning of marginal cost in terms of additional inputs needed to produce a marginal unit of output. ​Initially, the number of additional inputs needed to produce additional output is _____ ​; ​however, after a certain​ point, ______ additional inputs are needed to produce an additional unit of output.

decreasing, more

As output​ increases, total fixed cost​ ________ and average fixed cost​ ________.

does not​ change; decreases

The marginal cost curve of a perfectly competitive firm is the​ firm's short-run demand curve.

false

Evaluate the following​ statement: If the total variable cost of production is the sum of the marginal cost of each additional unit of​ output, we can calculate the marginal cost by taking the total variable cost of production and dividing it by the quantity of output produced. This statement​ is:

false; it is confusing marginal cost with average variable cost

In​ economics, the short run is a timeframe

in which firms are operating under a fixed scale of production.

For the following​ business, what is the likely fixed factor of production that defines the short run ​? The fixed factor of production for a law office is most​ likely

the office, furnishings

All of the following are characteristics of firms in a perfectly competitive industry except

they are price makers

The vertical distance between the total variable cost curve and the total cost curve represents

total fixed cost

In perfect​ competition,

total revenue always equals total cost.

Economic profit can be calculated as

total revenue minus−​(explicit costs​ + implicit​ costs).

Identify whether the following is a fixed cost or a variable cost for General Motors. The cost of tires it purchases from Goodyear for its trucks and SUVs. This is an example of a

variable cost

If marginal cost is above average total​ cost, average total cost

will increase

Firms minimize​ costs; thus, a firm earning​ short-run economic profits will choose to produce at the minimum point on its average total cost curve. Do you agree or disagree with this​ statement?

​Disagree: Firms earning profits will produce to the right of the minimum point on the average total cost curve.

As output​ increases, total variable cost​ ________ and average variable cost​ ________.

​increases; decreases and then increases

The optimal level of production is the production level that maximizes cost for a given level of output.

False

Consider the following costs of owning and operating a car. A ​$ ​15,000 Fiat 500 Pop financed over 60 months at 1010 percent interest means a monthly payment of ​$319. Insurance costs ​$100 a month regardless of how much you drive. The car gets 20 miles per gallon and uses​ regular-grade gasoline that costs ​$2.50 per gallon.​ Finally, suppose that wear and tear on the car costs about ​$0.15 a mile. Which costs are​ fixed, and which are​ variable?

Fixed costs are the monthly car payment and the cost of​ insurance; variable costs are the cost of gasoline and costs associated with wear and tear.

Following is information on the production levels of three different firms. Firm A is currently producing at a quantity where it is experiencing increasing returns. Firm B is currently producing at a quantity where it is experiencing diminishing returns. Firm C is currently producing at a quantity where it is experiencing negative returns. If each of the firms cuts back oncuts back on its labor​ force, what will happen to its marginal product of​ labor?

For Firm A, MPL falls. For firm B, MPL rises. For Firm C, MPL rises.

Does the table indicate a situation of diminishing​ returns? Explain your answer

**LOOK AT ACTUAL TABLE** Yes, because the marginal product of labor falls as labor increases.

The data in the table represents annual costs and revenue for​ Ted's Vintage​ Threads, a used clothing store in Key​ West, Florida. Ted works 72 hours a week at the store. He also owns the building that houses his​ business, and if he closed the​ store, he could rent out the building for ​$30,000 per year and go to work for his​ cross-town rival,​ Cassie's Classic​ Couture, and earn a salary of ​$35,000 per year. Wages Paid ​$25,000 Interest Paid on Loans 10,000 Other Expenditures for Factors of Production 30,000 Total Revenue 125,000 The economic cost for​ Ted's Vintage Threads is

130,000

On the diagram to the​ right, sketch the corresponding marginal cost curve. The firm will maximize profits by producing ___ units of output.

200

If one worker can produce 30 units of output and two workers can produce a total of 50 units of​ output, the average product for the two workers is​ ________ units of output and the marginal product of the second worker is​ ________ units of output.

25;20

At what gasoline price would DannyDanny be indifferent to arriving in either 6 hours or 7 hours if he wants to maximize his​ winnings? He would be indifferent if the price was ​_ per gallon.

5.71

If t he output price was ​$64​, the firm would produce ______ units of output because that is where ______

6, price equals MC

Identical sweaters can be made in one of two ways. With a machine that can be rented for ​$40.00 per hour and a person to run the machine who can be hired at ​$25.00 per​ hour, five sweaters can be produced in an hour using ​$15.00 worth of wool.​ Alternatively, I can run the machine with a​ less-skilled worker, producing only four sweaters in an hour with the same ​$15.00 worth of wool.​ (The less-skilled worker is slower and wastes​ material.) At what wage rate would I choose the​ less-skilled worker? You would choose the​ less-skilled worker if their corresponding wage were less than

9.00

A student who lives on the fourth floor of Bates Hall is assigned to a new room on the ninth floor during her junior year. She has 14 heavy boxes of books and​ "stuff" to move. What are some of the alternative combinations of capital and labor that might be used to make the​ move?

All of the above

Can you think of any reasons why a production show would choose to not offer tickets in this​ manner? ​(Check all that apply​.)

All of the above

Who among the following do you suppose are the least​-likely customers to purchase show tickets through these discount ticket​ outlets? ​(Check all that apply​.)

Individuals traveling with an ample entertainment budget, People having a rigid vacation itinerary and thus needing much certainty in their schedule, People who are very 'picky' about seat quality​ (location).

Total fixed costs do not change with output. Firms have control over fixed costs in the short run.

Disagree: Firms do not have control over fixed costs in the short run.

Why is the demand for land likely to be very high near the center of a​ city?

Easy accessibility using various modes of public and private transportation

As output​ increases, average fixed cost will eventually reach zero.

False

Because of diminishing​ returns, marginal cost curves are likely to rise and then fall.

False

Over what range of labor input is marginal product greater than average​ product? What is happening to average product as employment increases over this​ range?

Marginal product is greater than average product from worker 1 to worker 3, which causes the average product of labor to rise.

Over what range of labor input is marginal product smaller than average​ product? What is happening to average product as employment increases over this​ range?

Marginal product is less than average product from worker 5 to worker 7, which causes the average product to fall.

Are these figures the same as the accounting cost and accounting​ profit? Explain.

No, the accounting profit would be higher since the opportunity cost is not included in the accounting profit.

Over what range of labor input are there increasing returns to​ labor? diminishing returns to​ labor? negative returns to​ labor?

Returns to labor are increasing for workers​ 1, 2, and​ 3, while diminishing for workers 4 through 7​ (with no negative returns to​ labor)

One major reason seems to be that manufacturing firms find it difficult to substitute capital for​ land, while​ service-sector firms that use office space do not. Why do you think it is relatively harder for a manufacturing firm to substitute capital for​ land?

Since people can take stairs or​ elevators, offices can be​ stacked; assembly lines canno

Since the end of World War​ II, manufacturing firms in the United States and in Europe have been moving farther and farther outside of central cities. At the same​ time, firms in​ finance, insurance, and other parts of the service sector have been locating near downtown areas in tall buildings. What kinds of buildings represent substitution of capital for​ land?

Skyscrapers

Explain why opportunity costs are​ "real" costs even though they do not necessarily involve​ out-of-pocket expenses.

The capital could have instead earned a normal rate of return invested in bank certificates of deposit.

Consider a firm that uses capital and labor as inputs and sells 20,000 units of output per year at the going market price of ​$15. Also assume that total labor costs to the firm are ​$249,500 annually. Assume further that the total capital stock of the firm is currently worth ​$400,000​, that the return available to investors with comparable risks is 66 percent​ annually, and that there is no depreciation. Is this a profitable​ firm? Explain your answer.

The firm isis profitable because profit equals ​$13,500.

Ben Cartwright runs the Wild West Wax Museum in Carson​ City, Nevada. The museum has been in business for​ 40 years and is a major tourist attraction. The total value of the​ museum's capital stock is​ $3.5 million, which Ben owns outright. This​ year, the museum earned a total of​ $1.4 million after​ out-of-pocket expenses. Without taking the opportunity cost of capital into​ account, this means that Ben is earning a 40 percent return on his capital. Suppose that​ risk-free bonds are currently paying a rate of 10 percent to those who buy them. What is meant by the​ "opportunity cost of​ capital"?

The implicit cost of capital

While charging a general admission price of​ $15 for adults most days of the​ week, the Museum of Fine Arts in Houston offers free admission every Thursday. Why do you suppose that museums often price this​ way, offering free admissions on one day during the​ week?

The marginal cost of admitting additional visitors is almost zero

Using the graph on the​ right, draw ATC​, AVC​, and MC. Your curves do not need to fit the data in the table preciselylong dash—a general representation is all that is necessary.

see phone

When total product reaches its highest​ level, marginal product

is zero.

The city of Santa Barbara comma California comma builds a water desalinization plant to help alleviate the water shortage problem arising from severe drought conditions. This is a _____ decision.

long-run

The slope of the total variable cost curve is

marginal cost

Assuming it chooses to​ produce, a​ profit-maximizing firm in a perfectly competitive industry will produce output where

marginal revenue equals marginal cost.

A firm earning zero economic profits is probably suffering losses from the standpoint of general accounting principles. Do you agree or disagree with this​ argument? It is actually earning a​ ________ given the extent of the risks involved. The full economic​ cost, including opportunity​ costs, is included in ​ _______ cost but not in​ _______ cost.

normal rate of return​ (or profit);​ economic; accounting

Use the information from the table to construct a rough plot showing marginal​ revenue, marginal​ cost, and average total cost.

phone

The number of oil changes conducted by a service station depends on the number of workers as shown in the table below. Assume that all inputs​ (service bins,​ telephone, and​ utilities) other than labor are fixed in the short run. In the table​ below, enter the marginal product and average product for each number of workers. ​(Round your responses to two decimal places.​)

picture on phone

In addition to​ gambling, Las Vegas is famous for its live production shows. Close to 100 shows are performed at various venues across the city on any given​ day, and many of the shows are​ multi-million dollar productions with​ months-long waiting lists for the best seats. Box office ticket prices range from less than​ $10 for a few of the smaller shows to over​ $200 for some of the major productions. In recent​ years, a number of these shows have begun offering tickets for sale at half price through discount ticket outlets. These​ half-price tickets are only available on the day of the​ show, on a​ first-come, first-served basis. Using the concept of marginal​ cost, explain why many of these productions have begun to offer these​ half-price tickets. Once a show has been scheduled and sufficient seats sold to make it ______ to stage, the marginal cost of filling remaining seats is probably _______.

profitable, near zero

Even at​ half-price, the added _______ will exceed the negligible marginal cost of filling the remaining​ seats, enabling the​ show's promoter to enhance its ______.

revenue, profit

When the marginal product is falling​, the marginal cost​ is:

rising

A ​ firm's cost curves are given in the following table.

see phone

Assume that​ "cost of​ processing" includes all labor and​ materials, including the​ owner's wages. Assume further that​ Isabel's family signed a​ long-term contract​ (20 years) with a service company to keep the machines in good repair for a fixed fee of ​$3,650 per​ year, or ​$10 per day. marginal cost

see phone

Assume that​ "cost of​ processing" includes all labor and​ materials, including the​ owner's wages. Assume further that​ Isabel's family signed a​ long-term contract​ (20 years) with a service company to keep the machines in good repair for a fixed fee of ​$3,650 per​ year, or ​$10 per day. total cost

see phone