Economics Homework Six Answers - Student Fourteen
1. Fixed costs can be easily identified by seeing what the total costs are when output is _______. Separately, give an example of a variable cost.
Fixed costs can be easily identified by seeing what the total costs are when output is zero. Variable costs include labor expenses and raw material costs, an employee could be an example of this.
2. The Lecture mentioned how a prior student in this course is paying her way through college by working as a waitress in a fancy Manhattan restaurant. Suppose her boss told her one day, "We were profitable last month. To increase our profits next month, I'm going to double our number of waitresses so that we can serve more people!" But our former economics student told him that his plan would fail because there is _____________ 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.
Diminishing marginal returns, which is when the marginal product of labor is less than the average product of labor.
- Not quite what I'm asking for here, which is "returns to scale," a long run concept. See model answers after Sunday. (Minus 1).
3. Give an example of a "short run" cost for a firm, and give an example of a "long run" cost. This can refer to any type of firm, from a grocery store to a baseball team to a homeschool.
A short run cost is a short period of time when a company can only make temporary changes. A long run is a longer period of time with more permanent changes. An example of this could be the drug Tamiflu. When flu season comes around pharmaceutical companies have higher demand and therefore they need to produce more of this drug. In order to do so they might need to hire more employees to help supply the drug in order for supply to meet demand. The long run would be buying more permanent things such as machinery, bigger buildings, etc.
4. Suppose you own a mechanics' shop that fixes cars, and you have 4 employees whom you pay $12 per hour. On average your 4th employee can fix 3 cars an hour. What is your marginal product (MP) and marginal cost (MC), and what is the minimum on average that you need to charge customers (your marginal revenue) for fixing cars? (Assume your only cost is labor, and the customer pays the cost of any parts.)
Marginal product equals $3. Marginal Cost equals $4, and the Marginal Revenue is also $4.00.
- Numbers are correct, but units are off. MP=3 cars per hour of labor, not $3. MC=$4 per car. MR=$4 per car. (Minus 1).
5. Earlier in this course we learned that someone who obtains a college degree earns, over the course of his life, about $500,000 more than someone who does not. How can you explain this fact in terms of the advantages of "long run" costs over "short run" costs?
Getting a college degree can help in many ways. First and foremost it gives you a better understanding of things going on within the world, and also gives you a better chance of qualifying for a higher paying job. The long run ends up being better.
7. Suppose you own and drive a taxicab, and its annual license fee is $1000 per year. Suppose you learn that the license fee will increase to $1200 next year. Does this increase either increase, decrease, or have no effect on (a) marginal cost, (b) average variable cost, and (c) average total cost? The marginal cost has no effect. The average total cost increases. The average variable cost stays the same.
8. Suppose you could earn $8 an hour. Instead, you watch television for an hour. What is your accounting profit or loss, and what is your economic profit or loss, for that hour?
The accounting loss would be $0. The economic loss is $8.00. Instead of wasting an hour watching TV, you could be doing something much more efficient.
- I only asked for 7 answers (always be sure to read the instructions carefully). I'll drop your weakest answer, so your final score is 69/70. That's fantastic on this difficult homework!--Andy Schlafly 16:31, 25 October 2009 (EDT)