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.)
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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?
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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.
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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
