Economics Homework Six Answers - Student Four

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1. Fixed cost can be easily identified by seeing what the total cost are when the ouput is zero. An example of variable cost in a restaurant would be the cost of food, additional employees, and energy that increase as the business grows.

Excellent. (Spelling: "output", not "ouput"; grammar: "total cost IS", not "are")

2. The plan would fail because there is a decreasing returns of scale in the restaurant, because more waitresses would result in more wasted time talking to each other and waitresses getting in the way of each other.


3. An example of a short run cost in a home school would be the cost of purchasing books, learning aids, etc. for a preschool child to help teach them the basics. A long run cost with a home school is continuing to purchase what is needed to properly teach the child through the years so they are equipped and prepared to go out into the world, get a job, and be a productive member of society.

Not quite. You understand the differences in time between the two, but there is also a difference in the type of goods purchased. See model answer when available. (Minus 1).

5. In the short run, it may cost quite a bit of money to get a degree from college, but in the long run, the money, time, and effort pays off with more marketable skills and ultimately a better job and quality of life.


6. Your fixed cost would be $1,000,000 for the factory. Your average variable cost would be $20,000 (1,000,000/50) Your average total cost would be $40,000 ($1,000,000 fixed + $1,000,000 variable/50 cars) Your Marginal cost would be $19961 ($1,000,000 + $18000/51)

All correct until the marginal cost. It is simply the $18,000 paid to make the 51st car. (Minus 1).

7. When the fee is raised to $1200 marginal cost, average variable cost, and average total cost would all increase.

Nope on two out of three. Only the average total cost increases, because the license is a fixed cost independent of output (number of car riders). When output is 0, the license cost is still the same. (Minus 2).

8. By watching TV for an hour instead of working and earning $8/hour, your accounting loss would by $8 plus an unknown amount of explicit cost for things such as electricty to run the TV. The economic loss would not be possible to figure out without additional information.

Nope, accounting loss is $0 and the economic loss is $8, because economic loss factors in the opportunity cost. (Minus 2)
64/70, with some good answers. Please be sure to review the model answers when available after Sunday. Our midterm exam will be a week from this Thursday. Thanks.--Andy Schlafly 19:54, 24 October 2009 (EDT)