econ problem set 7/8

Sunk costs

are irrelevant to economic decision making

which of the following costs always declines as output increases

average fixed cost

Suppose that the price of labor (PL) is $10 and the price of capital (PK) is $20. What is the equation of the isocost line corresponding to a total cost of $100?

100 = 10L + 20K

The total cost (TC) of producing computer software diskettes (Q) is given as TC = 200 + 5Q What is the variable cost?

5Q

A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's economies of scale?

The short-run average cost curve reveals nothing regarding economies of scale.

The difference between the economic and accounting costs of a firm are

a. the opportunity costs of the factors of production that the firm owns.

A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm

could reduce the cost of producing its current output level by employing more labor and less capital.

The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. For 100 cookies, the average total cost is

falling

An isocost line reveals the

input combinations that can be purchased for a given total cost

Generally, economies of scope are present when

joint output is greater from a single firm producing two goods than could be achieved by two different firms each producing a single product (assuming equivalent production inputs in both situations).

In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus,

marginal cost is below average variable cost

The total cost of producing a given level of output is

minimized when the marginal products of all inputs are equal

fixed costs are fixed with respect to changes in

output

When an isocost line is just tangent to an isoquant, we know that

output is being produced at minimum cost

A firm wants to minimize the total cost of producing 100 tons of dynamite. The firm uses two factors of production, chemicals and labor. The combination of chemicals and labor that minimizes production costs will be found where

the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used.

The equation below gives the degree of economies of scope (SC): SC = [C(Q1) + C(Q2) - C(Q1,Q2)]/C(Q1,Q2) , where C(Q1) is the cost of producing output Q1 and C(Q2) is the cost of producing output Q2, and C(Q1,Q2) is the joint cost of producing both outputs. If SC is negative

there are diseconomies of scope

Which of the following costs are always increasing as output increases?

total cost and variable cost