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