šŸ·ļø LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION ā†’
Log in
HomeStudy Guides420,000US230,000

ECON 102 Study Guide - Quiz Guide: Production Function, Marginal Product, Fixed Cost

90 views7 pages
turquoisegnu128
28 Sep 2018
School
PSU
Department
Economics
Course
ECON 102
Professor
All

For unlimited access to Study Guides, a Grade+ subscription is required.

ECON 102 Full Course Notes
1
ECON 102 Full Course Notes
Verified Note
1 document

Document Summary

Dexter is an accountant earning ,000 per year but he hates his job. Dexter decides to leave his accounting job and start his own white water rafting guided tour business. Dexter has ,000 in savings that he will use to start his new business and he borrows the remaining ,000 from a bank. The explicit cost of opening dexter"s white water rafting business is. ____ and the implicit cost of opening the new business is ______. Economists assume that firms maximize the quantity of output produced. Correct! act as though they intend to make profit as large as possible maximize both profit and the amount of output produced maximize total revenue. The best way to predict a firm"s behavior is to assume that they are maximizing profit. The marginal product of labor is calculated as the change in q divided by the change in. Sum the marginal products up to l = 4.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers

Related Documents

ECON 1 Lecture Notes - Lecture 12: Farmer Jack, Average Cost, Monopolistic Competition
coffeewolf393
ECON 1 Lecture Notes - Lecture 14: Fixed Cost, Farmer Jack, Marginal Product
rosewoodchuck40
ECON 1 Lecture Notes - Lecture 8: Marginal Cost, Opportunity Cost, Production Function
ochrerhinoceros257

Related Questions

PLEASE ANSWER ALL PARTS OF ALL QUESTIONS THOUROUGHLY (WILL GIVE GOOD RATING-THANKS)

A. Consider an entrepreneur who has decided to follow through on a business venture. He has quit his job where he was employed as a Medical Assistant earning $2,500 a month, and has decided to run this new business venture alone as the sole proprietor. He approaches a bank with his business idea and obtains a loan for the startup and purchases the equipment and machinery that he would need for the business including the purchase of a web address and design for his business, he also takes out a 2 year lease on a building and adjoining property, with paid utilities at an excellent location and contracts with suppliers to provide him with raw materials on a six month basis at discounted bulk purchase rates. His total fixed costs on a monthly basis for this venture, which includes his forgone earnings from his previous job, are $7,500.

He now needs to hire workers to operate the machines, handle orders etc. and he needs at least 5 workers to begin production. Having taking ECON 2020 while in college, he computes the total product function for his business, on a monthly basis, given the quantity of other resources he has, in the short run as follows:

Quantity of Labor (Number of workers)

Total Product (Output)

5

200

10

450

15

800

20

1100

25

1300

30

1400

1. First, assume no other information on the profitability of this venture, what is the implied 'profit' expected by the entrepreneur each month? Explain

2. Obtain the marginal physical product of this business, graph the function and provide an intuitive explanation for the shape of the function.

3. Now suppose each worker hired is paid $10/hr in wages and works 150 hours each month. Obtain the monthly total variable, total fixed and total cost functions for this business if it produces at the various output levels in the table above (i.e. fill out the table below, and show all necessary work below)

Output (Q)

Total Fixed Cost

Total Variable Cost

Total Cost

200

 Ā  Ā  Ā 

450

 Ā  Ā  Ā 

800

 Ā  Ā  Ā 

1100

 Ā  Ā  Ā 

1300

 Ā  Ā  Ā 

1400

 Ā  Ā  Ā 

4. The entrepreneur knows that his business is producing in an environment of perfect competition and as a result the market determined price after his entry into the business is $37.50 for each unit of the product that he sells. Determine the firm's monthly profit maximizing (or loss minimizing) output level , using the profit maximizing rule

5. From (4), is this firm making any excess (economic) profits in the short run? Explain. Compute the firm's monthly profits (or losses) at the profit maximizing output level

6. What should we expect to happen in the long run in this industry as a result of the correct answers given in part (5)? Explain.

1. The Houston Chronicle reported that in Houston, the average price of new homes has decreased, while at the same time, the number of new homes sold has increased.Ā This situation could be explained by which one of the following: (draw curves before answering)

  1. An Increase in demand
  2. An Increase in supply
  3. A Decrease in demand
  4. A Decrease in supply

2. In another market, the average price of new homes fell, while at the same time, the number of new homes sold decreased. The situation would best be explained by (Draw the curves before answering)

  1. An Increase in Demand
  2. An Increase in Supply
  3. A Decrease in demand
  4. A Decrease in supply

3. A consumer is said to have achieved maximum total utility when:

  1. Purchases of Good A give the same satisfaction as purchases of Good B.
  2. Purchases of the last dollar spent on Good A give the same satisfaction as purchases of the last dollar spent on Good B.
  3. The average purchases per dollar of Good A give the same satisfaction as the average purchases per dollar of Good B.
  4. The total utility derived from Good A is the same as the marginal utility derived from Good B.

4.Ā You are given the following information about a firm's present output position: MPP (Marginal Physical Product) of Land = 12; MPP of Labor = 16; Price of Land = $2; Price of Labor = $4. With no additional money to spend, this firm should:

5. A firm achieves the least cost in production by substituting factors until

  1. their factor prices are equal
  2. their marginal products are equal to the factor prices
  3. their marginal products are each equal to zero
  4. the ratios of their marginal product equal the ratio of their prices
  5. none of the above

6.The economy is currently on its production possibilities frontier (PPF). A politician says that it is possible to get more of everything--more infrastructure, more schools, more national defense, more spending on social programs, and so on. The politician is

  1. correct if he is assuming a rightward-shifting PPF.
  2. incorrect if he is assuming a rightward-shifting PPF.
  3. correct if he is assuming a PPF that does not change.
  4. none of the above

7. Assume your swimsuit business is at its maximum profit position, and one new change occurs: consumer incomes decrease. If swimsuits are normal goods, the equilibrium price of swimsuits will __________, and the CONSUMER surplus will ________.

  1. increase, increase
  2. decrease, decrease
  3. increase, decrease
  4. decrease, increase

8. Firms that shuts-down in the short-run still must pay:

  1. Marginal cost
  2. Variable cost
  3. Fixed cost
  4. Total cost

9. The term externalities refer to:

  1. Black-market economic activity.
  2. The impact on markets of imported goods.
  3. The costs and benefits of a market activity borne by a third party.
  4. The inequitable distribution of income.

10. If full external costs are not internalized, firms will tend to allocate more of society's scarce resources to produce than is societally warranted, and if full external benefits are not internalized, firms will allocate less of society's resources to produce than is societally justified. True/False.

11. Joe was very careful about smoking in his home until he bought a fire insurance policy. After buying the policy, he became careless. His attitude is: "I'm insured. What do I care if this place burns down; I'll just collect the money". Joe's attitude is an example of ______________.

12. Megatrust Bank had historically scrutinized loans very carefully and extended them, only to persons whom they considered very creditworthy. They made relatively few loans. However, after the government provided guarantees to sub-prime loans, Megatrust relaxed its standards and increased its loan volume. (And its default rate as well.) This is an example of _______________.

13. In the short-run, if a perfectly competitive firm finds itself operating at a loss, it will

  1. Reduce the size of its plant to lower fixed costs.
  2. Raise the price of its product.
  3. Shut down.
  4. Continue to operate as long as it covers its variable cost.

14. If income today is more equally distributed than it was in 1960, a Lorenz Curve depicting today's distribution would be

  1. More bowed and to the left of the 1960's curve.
  2. More bowed and to the right of the 1960's curve.
  3. Less bowed and to the left of the 1960' curve.
  4. Less bowed and to the right of the 1960's curve.

15. Which of the following statements isĀ true?

  1. As output increases, the average fixed cost becomes smaller and smaller.
  2. Average fixed cost does not change as output increases.
  3. The marginal cost curve intersects the average fixed cost curve at its minimum point.
  4. When marginal cost is greater than average fixed cost, average fixed cost increases.
  5. Ā 

16. A firm in any of the market structures we have studied will maximize its profit (or minimizes its loss) when its

  1. Average costs are at a minimum
  2. Marginal revenue andĀ marginal cost are the same.
  3. Marginal revenue is less than marginal cost.
  4. Marginal revenue is zero.

17. If the demand for a good increase, when the price of other good increases, these goods are

  1. Capital goods
  2. Substitute goods
  3. Complementary goods
  4. Luxury goods

18.Ā Which of the following pairs of products are complementary goods?

  1. mobile phones and laptops
  2. pens and pencils
  3. sugar and artificial sweeteners
  4. radios and television
  5. toothbrushes and toothpaste

19. The amount of a good that is given up to produce another good is:

  1. Scarcity
  2. Specialization
  3. Opportunity cost
  4. Trade
  5. Efficiency

20.Ā The most important characteristic of the equilibrium price is that it:

  1. Guarantees that producers earn a profit.
  2. Increases the quantity demanded.
  3. Clears the market.
  4. Decreases the quantity supplied.

21. Rank the following market structures based on the number of participating firms: From the fewest number of firms to the most number of firms:

  1. Oligopoly
  2. Perfect Competition
  3. Monopoly
  4. Monopolistic Competition

22. If firms in a monopolistically competitive market are earning economic profits which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

  1. an increase in demand
  2. a decrease in demand
  3. a downward shift in their marginal cost curve
  4. an upward shift in their marginal cost curve


23. If labor in Mexico is less productive than labor in the United States in all areas of production,Ā 

  1. neither nation can benefit from trade
  2. Mexico can benefit from trade but the United States cannot
  3. Mexico will not have a comparative advantage in any good
  4. both nations can benefit from trade

24. Which of the following statements is false?

  1. The typical monopolistically competitive firm could reduce its average total cost if it produced more output.
  2. Monopolistically competitive firms advertise to increase the elasticity of the demand curve they face.
  3. Expensive advertising might help consumers if it is a signal that the product is good.
  4. Brand names acquired at great cost might help consumers by assuring quality.

25. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigs in surrounding states. Which of the following principles does this best illustrate:

  1. people respond to incentives
  2. rational people think at the margin
  3. a trademark can make everyone better off
  4. markets are usually a good way to organize economic activity

Salvatore Chapter 1:

Discussion Questions: 9. How is the concept of a normal return on investment related to the distinction between business and economic profit?

Problems:

5. Determine which of the two investment projects a manager should choose if the discount rate of the firm is 10%. The first project promises a profit of $100,000 in each of the next 4 years, while the second project promises a profit of $75,000 in each of the next 6 years.

6. Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 20%.

15. Integration Problem Samantha Roberts has a job as a pharmacist earning $30,000 per year, and she is deciding whether to take another job as the manager of another pharmacy for $40,000 per year or to purchase a pharmacy that generates a revenue of $200,000per year. To purchase the pharmacy, Samantha would have to use her $20,000 savings and borrow another $80,000 at an interest rate of 10% per year. The pharmacy that Samantha is contemplating purchasing has additional expenses of $80,000 for supplies, $40,000 for hired help, $10,000 for rent, and $5,000 for utilities. Assume that income and business taxes are zero and that the repayment of the principle of the loan does not start before 3 years. (a) What would be the business and economic profit if Samantha purchased the pharmacy? Should Samantha purchase the pharmacy? (b) Suppose that Samantha expects that another pharmacy will open nearby at the end of 3 years and that this will drive the economic profit of the pharmacy to zero. What would the revenue of the pharmacy be in 3 years? (c) What theory of profit would account for profits being earned by the pharmacy during the first 3 years of operation? (d) Suppose that Samantha expects to sell the pharmacy at the end of 3 years for $50,000 more than the price she paid for it and that she requires a 15% return on her investment. Should she still purchase the pharmacy?

Spreadsheet Problem (see attached Excel doc)

Using the data below, (Excel doc) where column A represents student numbers, column B the finishing time for a 1 mile race for 10 students, and column C the age of the students, (a) Use the data analysis tools to plot a line graph of all the finishing times. (b) Calculate a mean, median, mode, sample variance, sample standard deviation, and coefficient of variation to statistically describe the data. (c) Use Excel to fine the covariance between the two variables. What does the covariance indicate about the relationship between finishing time and age?

Note:

P15(d): Change Ć¢Ā€ĀœĆ¢Ā€Ā¦ for $50,000 more than Ć¢Ā€Ā¦Ć¢Ā€Ā to Ć¢Ā€ĀœĆ¢Ā€Ā¦ for $50,000 less than Ć¢Ā€Ā¦Ć¢Ā€Ā Compare the present value of economic profit in each of the next three years and the loss of $50,000 in the third year using 15% as the discount rate.

The spreadsheet problem (b): Calculate a mean, Ć¢Ā€Ā¦. to statistically describe the data of both variables, Time and Age.

Individual problems:

3-1 You won a free ticket to see a Bruce Springsteen concert (assume the ticket has no resale value). U2 has a concert the same knight, and this represents your next-best alternative activity. Tickets to the U2 concert cost $80, and on any particular day, you would be willing to pay up to $100 to see this band. Assume that there are no additional costs of seeing either show. Based on the information presented, what is the opportunity cost of seeing Bruce Springsteen?

3-3 Because of the housing bubble, many houses are now selling for much less than their selling price just 2 to 3 years ago. There is evidence that homeowners with virtually identical houses tend to ask for more is they paid more for the house. What fallacy are they making?

Salvatore Chapter 3:

Discussion Questions:

9. How would you react to a sales managerĆ¢Ā€Ā™s announcement that he or she has in place a marketing program to maximize sales?

Problems:

1(a). Given the following total-revenue function: TR= 9Q - Q^2

Derive the total-, average-, and marginal- revenue schedules from Q=0 to Q=6 by 1Ć¢Ā€Ā™s.

7. Given the total-cost schedule: Q 0 1 2 3 4

TC 1 12 14 15 20

Derive the average- and marginal-cost schedules.

9. With the total-revenue curve of Problem 1 and the total-cost curve of problem 7, derive the total-profit function and show how the firm determines the profit-maximizing level of output.

Note:

DQ9: Does maximum sales (revenue) equal maximum profit (see figure 3-4)?

Revised P1(a): Derive the total-revenue, average-revenue, and marginal-revenue schedules from Q = 0 to Q = 4 by 1s.

Average revenue (AR) = total revenue (TR)/Q

Marginal revenue (MR) = change in total revenue/change in Q

For example:

Q

TR

AR

MR

2

14

7 (=14/2)

3

18

6 (=18/3)

4 (=(18-14)/(3-2)

Revised P9: With the total-revenue schedule of Problem 1 and the total-cost schedule of Problem 7, show the profit-maximizing level of output (profit=TR-TC).

Froeb et al. Chapter 4:

Individual problems:

4-5 Your insurance firm processes claims through its newer, larger high-tech facility and its older, smaller low-tech facility. Each month, the high-tech facility handles 10,000 claims, incurs $100,000 in fixed costs and $100,000 in variable costs. Each month, the low-tech facility handles 2,000 claims, incurs $16,000 in fixed costs and $24,000 in variable costs. If you anticipate a decrease in the number of claims, where will you lay off workers?

4-6 A copier company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two new copiers, and output increased by 100,000 pages per day. One month ago, they added five workers, and productivity also increased by 50,000 pages per day. Copiers cost about twice as much as workers. Would you recommend they hire another employee or buy another copier?