Economics Homework Six Answers - Student Seven

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Trisha M.

1. Fixed costs can be easily identified by seeing what the total costs are when the output is zero. An example of a variable cost would be the amount of money needed to pay employees their wages. This amount can vary as the employees quit their job, are hired or given raises.

Good, but your explanation of "variable cost" is slightly off. It's called "variable" because it varies with a change in OUTPUT, not something else. (Minus 1).

2. The boss' plan would fail because of decreasing returns of scale for the restaurant.

Right.

3. A short run cost for a restaurant would be paying overtime to waiters who were requested to stay and serve people who came to the restaurant just as it was closing. A long run cost for this restaurant would be to hire and train new waiters who would take a later shift to keep the restaurant open later every night.

Excellent.

4. I chose not to answer this question.

Free pass on a question.

5. Obtaining a college degree would be expensive and time-consuming in the short run, however in the long run it would pay off since you would be more likely to get a better job and make more money than someone who does not have a degree.

Superb.

6. The fixed cost would = $1,000,000 for the building; The average variable cost would also be $1,000,000 for the materials, labor, and electricity; The average total cost would be $2,000,000 with the cost of the building plus the materials, labor, and electricity added together. The marginal cost to make the 51st car would be $18,000 since that is how much it costs to make the 51st car.

Your variable and total costs are not properly averaged over the output. Average variable cost is Total variable cost divided by the number of units: 1,000,000 divided by 50 units = $20,000 per unit. Average total cost is Total cost divided by the number of units: $2,000,000 divided by 50 units = $40,000 per unit. Your MC is correct. (Minus 2).

7. a) There would be no effect on the marginal cost. b) there would be an increase in the average variable cost because the license fee is not a fixed cost and its price rose. c) the average total cost would increase since there is an increase in the average variable cost which includes the license fee.

(A) is correct. (B) is not correct because license fees are not variable costs dependent on output. There is no effect on variable cost here. (C) is correct. (Minus 1).

8. My accounting profit or loss for that hour of watching television is equal to the total revenue minus explicit costs. The total revenue = $0; The explicit costs (since we're not talking about opportunity costs) would also be $0. Thus, the accounting profit or loss is nothing since 0 minus 0 = 0. My economic profit or loss is equal to the time I spent and the opportunity cost. So, in this case that would equal 1 hour - $8. So, I lost an hour of my time and $8.

Excellent!
Good work. 66/70. This homework was difficult but you did well.--Andy Schlafly 21:53, 24 October 2009 (EDT)
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