ECE 394 Chapter Notes - Chapter 12: Marginal Cost, Marginal Product, Opportunity Cost

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periwinklecattle234

29 Jun 2016

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Making a pro t and maximizing pro ts are the central goals of a business. Total revenue: the amount that a rm receives from the sales of goods and services. Tr= quantity sold x price paid for each unit. Tr for more than one product= (q1 x p1)+ (q2 x p2) . Total cost: the amount that a rm pays for ll of the inputs that go into producing goods and services. Includes one-time expenses: buying machinery ongoing expenses: rent, salaries, raw materials anything and everything that goes into companies making products combination of all xed costs and variable cost. Fixed cost: cost that do not depend on the quantity of output produced cost remains the same regardless of how much is produced. Variable cost: costs that depend on the quantity of output being produced costs depend on the level of production ex. raw materials, labor cost. If a rm stops producing, vc=0, but fc remain the same.

Related Questions

I have this short-run total cost function TC(x) = 25x + 100, and x is the quantity produced.

a) Find the Fixed Cost of production: FC=

b) Find Variable Cost production: VC(x)=

c) Find the equation for Average Fixed Cost: AFC(x)=

d) Find the equation for Average Variable Cost: AVC(x)=

e) Show the equation for Average Cost: AC(x)=

f) Show the equation for Average Cost of producing x=10 units of output: AC(10)=

g) Find the Marginal Cost of production: MC(x)=

skyotter83

Assume that a firm in a perfectly competitive market can sell its product for $35 (ie price per unit of output). Furthermore, it faces the following costs:

Output (Q)	Total Cost
0	25
1	50
2	100
3	120
4	155
5	190
6	250
7	390

a) Calculate Total revenue (TR), Marginal Cost (MC), Fixed Cost (FC), Variable cost (VC), and Average Cost (AC).
b) What is the profit-maximizing output level?
c) Is this firm is making a profit or loss at the profit-maximizing output level? Explain.
d) Do you think the firm will continue its production in the short run?
e) What will be the long-run price in this market?

tealwombat791

1. When economists speak of "marginal," they mean
a. Opportunity.
b. Scarcity.
c. Incremental.
d. Unimportant.

2. Managers undertake an investment only if
a. Marginal benefits of the investment are greater than zero.
b. Marginal costs of the investment are greater than marginal benefits of the investment.
c. Marginal benefits are greater than marginal costs.
d. Investment decisions do not depend on marginal analysis.

3. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly, and they cost $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs break down?
a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250.
b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250.
c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19,250.
d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250.

4. Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following is true if marginal cost is constant?
a. FC = $100
b. FC = $200
c. FC = $300
d. FC = $400

5. A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare
a. The total benefits gained from the two factories to the total costs of running the two factories.
b. The incremental benefit expected from the second factory to the total costs of running the two factories.
c. The incremental benefit expected from the second factory to the cost of the second factory.
d. The total benefits gained from the two factories to the incremental costs of running the two factories.

6. A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week. The cost of hiring him or her is $1,500 per week. If the price of each unit is $12,
a. The MR of hiring the worker is $1,500.
b. The MC of hiring the worker is $1,200.
c. The firm should not hire the worker since MB < MC.
d. All the above

7. A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a wage rate of $7 per hour is sufficient.
What is the marginal cost of the 13th worker?
a. $117
b. $9
c. $33
d. $84

8. If a firm's average cost is rising, then
a. Marginal cost is less than average cost.
b. Marginal cost is rising.
c. Marginal cost is greater than average cost.
d. The firm is making an economic profit.

9. After the first week of his MBA Managerial Economics class, one of your pharmaceutical sales representatives accuses you of committing the sunk-cost fallacy by refusing to allow him to reduce price to make what he considers to be a really tough sale. Which of the following suggests the sales representative may be right?
a. Most of the costs of drug development are sunk, not fixed.
b. Sales representatives are paid a sales commission on revenue, so they don't care about the costs of drug development.
c. Sales representatives don't worry that a low price today may make it more difficult for the company's other sales representatives to charge higher prices to their customers, tomorrow.
d. Sales representatives think only about one thing, sales.

10. A company is producing 15,000 units. At this output level, marginal revenue is $22, and the marginal cost is $18. The firm sells each unit for $48 and average total cost is $40.
What can we conclude from this information?
a. The company is making a loss.
b. The company needs to cut production.
c. The company needs to increase production.
d. Not enough information is provided.

ECE 394 Chapter Notes - Chapter 12: Marginal Cost, Marginal Product, Opportunity Cost

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