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Exam 13: The Costs of Production

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Question 61

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-Refer to Table 13-12. Which firm's long-run marginal cost decreases as output increases?

A) Firm 1
B) Firm 2
C) Firm 3
D) Firm 4

E) B) and D)
F) B) and C)

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Question 62

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If the average-total-cost curve is falling, then the marginal-cost curve must also be falling.

A) True
B) False

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Question 63

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When a firm experiences constant returns to scale,

Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the total output of five workers?

What might cause diseconomies of scale?

If the marginal-cost curve is rising, then so is the average-total-cost curve.

Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the shape of the average-total-cost curve?

-Refer to Table 13-12. Firm 4's efficient scale occurs at what quantity?

Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the shape of the average-fixed-cost curve?

Table 13-10 Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. ​ ​ $\begin{array} { | c | c | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (Instructional } \\\text { modules per } \\\text { month) }\end{array} & \begin{array} { c } \text { Fixed } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Average } \\\text { Fixed Cost } \\\text { (Dollars } \\\text { per unit) }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable } \\\text { Cost } \\\text { (Dollars per } \\\text { unit) }\end{array} & \begin{array} { c } \text { Average } \\\text { Total Cost } \\\text { (Dollars } \\\text { per unit) }\end{array} \\\hline 0 & 1,080 & & & & & & \\\hline 1 & 1,080 & 400 & 1480 & 400 & & & \\\hline 2 & & & & 450 & & & 965\\\hline 3 & & 1,350 & 2,430 & & & & \\\hline 4 & & 1,900 & & & & 475& \\\hline 5 & & 2,500 & & & 216 & & \\\hline 6 & & & 4,280 & 700 & & & \\\hline 7 & & 4,100 & & & & & \\\hline 8 & & 5,400 & & &135 & & \\\hline 9 & & 7,300 & & & & & \\\hline 10 & & & 10,880 & & & 980 & \\\hline\end{array}$ ​ ​ ​ -Refer to Table 13-10. What is the average fixed cost for the month if 9 instructional modules are produced?

Describe the general shape of the average-fixed-cost curve.

The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.

Table 13-9 ​ ​ $\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of w orkers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 30 & 0 \\\hline 1 & 100 & 30 & 15 \\\hline 2 & 180 & 30 & 30 \\\hline 3 & 240 & 30 & 45 \\\hline 4 & 280 & 30 & 60 \\\hline 5 & 300 & 30 & 75 \\\hline\end{array}$ -Refer to Table 13-9. The marginal products of hiring additional workers are

Table 13-3 ​ ​ $\begin{array} { | c | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 50 & 0 & 50 \\\hline 1 & 90 & 50 & 20 & 70 \\\hline 2 & 170 & 50 & 40 & 90 \\\hline 3 & 230 & 50 & 60 & 110 \\\hline 4 & 240 & 50 & 80 & 130 \\\hline\end{array}$ ​ ​ ​ -Refer to Table 13-3. The marginal product of the second worker is

Cameron's Lamp Emporium produced 300 lamps but sold only 230 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 230 units sold was $90. Total profit for Cameron's Lamp Emporium would be

Table 13-8 ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 20 & 0 \\\hline 1 & 20 & 10 \\\hline 2 & 20 & 40 \\\hline 3 & 20 & 80 \\\hline 4 & 20 & 130 \\\hline 5 & 20 & 200 \\\hline 6 & 20 & 300 \\\hline\end{array}$ -Refer to Table 13-8. What is the average fixed cost of producing 5 units of output?

Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the average variable cost of producing 500 units of output?

Scenario 13-1 Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year. -Refer to Scenario 13-1. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?

Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the total output of four workers?

Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the shape of the marginal-cost curve?