Econ Chapter 13 Part 3

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Table 13-11 Measures of Cost for Very Brady Poster Factory Quantity of Posters Variable Costs Total Costs Fixed Costs 0 $10 1 $1 2 $3 $13 3 $6 $16 4 $10 5 $25 6 $21 $10 Refer to Table 13-11. The total cost of producing 1 poster is

$11.

The Flying Elvis Copter Rides Quantity Total Cost Fixed Cost Variable Cost Marginal Cost Average Fixed Cost Average Variable Cost Average Total Cost 0 $50 $50 $0 -- -- -- -- 1 $150 A B C D E F 2 G H I $120 J K L 3 M N O P Q $120 R Refer to Table 13-7. What is the value of R?

$136.67

At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the

average total cost of 21 pairs of boots is $23.

When marginal cost is rising, average variable cost

could be rising or falling.

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

Diminishing marginal product suggests that the marginal

product of an extra worker is less than the previous worker's marginal product.

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of

lemons and sugar.

The fundamental reason that marginal cost eventually rises as output increases is because of

diminishing marginal product.

When a factory is operating in the short run,

it cannot adjust the quantity of fixed inputs.

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

there are economies of scale in retail sales.


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