Question 1

-This month, the local widget factory produced 100 widgets. The total variable cost of production was $500 and the average total cost of production was $8.
a) What is the total cost?
b) What is the total fixed cost?
c) What is the average fixed cost?
d) What is the average variable cost?

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-This month, the local widget...

Question 2

When the Rent-A-Limo Company negotiates its new labor contract it finds that the wages it must pay drivers have increased. How does this wage hike affect the Rent-A-Limo Company's average fixed cost, average variable cost, average total cost, and marginal cost?

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Question 3

In the long run all costs are variable costs. Why?

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Question 4

A firm increases both its plant and its labor force by the same percentage and its average total costs remain unchanged. Is the firm experiencing increasing returns to scale, constant returns to scale, or decreasing returns to scale?

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Question 5

Are the short-run average total cost curve and the long-run average cost both U-shaped for the same reasons? If so, carefully explain these reasons. If not, explain why each curve is U-shaped.

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Question 6

What is the difference between diminishing marginal returns and diseconomies of scale?

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Question 7

Which average cost curves are U-shaped?

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Question 8

-The above table shows the total product schedule for Hair Today, a hair styling salon.
a) What is the first worker's marginal product? The second worker? The third worker? The fourth worker? The fifth worker?
b) Over what range of workers is there increasing marginal returns? Over what range is there decreasing marginal returns?

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-The above table shows the total product...

Question 9

Explain the difference between increasing marginal returns and economies of scale.

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Question 10

-Ajax Manufacturing has a fixed scale of plant with the levels of total product given in the table for different levels of labor. Complete the table by calculating the average product and marginal product.

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-Ajax Manufacturing has a fixed scale of...

Question 11

Explain how new technologies, which increase productivity, affect the average variable cost, average total cost, and marginal cost curves.

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Question 12

What are diseconomies of scale and why might they occur?

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Question 13

Which curve shows the lowest average total cost at which it is possible to produce each output when the firm has time to change both its labor force and plant size?

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Question 14

What are economies of scale? What is the main source of economies of scale?

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Question 15

-The table above shows Randy's Shirts' short-run production function. Randy hires workers at a wage rate of $50 a day and his total fixed cost is $100.
a) What is the marginal product of the 3rd worker?
b) What is Randy's average fixed cost if 48 shirts are produced?
c) What is Randy's average variable cost if 56 shirts are produced?
d) What is Randy's marginal cost of producing the 52nd sweater?
e) What is Randy's average total cost if 48 sweaters are produced?

Accepted Answer

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-The table above shows Randy's Shirts' short-run...

Question 16

-The first table above has the total product schedule for an imaginary good called a widget. Each unit of labor costs $25 and the total cost of capital is $100.
a) Use this information to complete the remaining two tables. In the tables, TFC is the total fixed cost, TVC is the total variable cost, TC is the total cost, AFC is the average fixed cost, AVC is the average variable cost, ATC is the average total cost, and MC is the marginal cost.
   b) Suppose that labor becomes twice as expensive (so that one unit of labor now costs $50) but nothing else changes. Complete the above tables with the new cost schedules. If you plotted the cost curves, how would the increased wage rate affect the cost curves?

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-The first table above has...

Question 17

What is the long-run average cost curve? What are the three ranges of output and in what order do they occur? Briefly define each of the three ranges.

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Question 18

What is the relationship between the marginal product of labor and the marginal cost?

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Question 19

-The above table has the total product schedule for Jesse's Lawn Service.
a) In the figure, label the axes and then graph the total product curve.
b) Find the average product for the different amounts of employment.

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-The above table has the total...

Question 20

How do the marginal and average products of labor affect a firm's marginal and average variable costs in the short run?

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Quiz 11: Output and Costs

-This month, the local widget factory produced 100 widgets. The total variable cost of production was $500 and the average total cost of production was $8. a) What is the total cost? b) What is the total fixed cost? c) What is the average fixed cost? d) What is the average variable cost?