Changes

:Fixed costs can be easily identified by seeing what the total costs are when the output is zero. Variable cost are identified as the costs that help increase your output.  (Leonard)

:Fixed costs can be easily identified by seeing what the total costs are when the output is zero. Variable cost are identified as the costs that help increase your output.  (Leonard)

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.

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.

: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. (Shanna)

: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. (Shanna)

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.

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.

:An example of a short run cost for a clothing store would be the boss putting someone working behind the customer-service counter into the store pricing articles of clothing, because they had a lack of people pricing clothing. An example of a long run cost would be the boss hiring another person to be pricing clothing, thus fixing the problem permanently, rather then just temporary as in the first example. (Deborah)

:An example of a short run cost for a clothing store would be the boss putting someone working behind the customer-service counter into the store pricing articles of clothing, because they had a lack of people pricing clothing. An example of a long run cost would be the boss hiring another person to be pricing clothing, thus fixing the problem permanently, rather then just temporary as in the first example. (Deborah)

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.)

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.)

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?

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?

6.  Suppose you spent one million dollars to build your factory, and another million dollars for materials and labor and electricity to make 50 cars.  What is your fixed cost, average variable cost, and average total cost?  Now suppose it costs you $18,000 to make a 51st car.  What is your marginal cost?

6.  Suppose you spent one million dollars to build your factory, and another million dollars for materials and labor and electricity to make 50 cars.  What is your fixed cost, average variable cost, and average total cost?  Now suppose it costs you $18,000 to make a 51st car.  What is your marginal cost?

:FC-$1,000,000 VC-$1,000,000 AVC-$20,000/per unit ATC-$40,000/per unit MC-$18,000 (Aran)

:FC-$1,000,000 VC-$1,000,000 AVC-$20,000/per unit ATC-$40,000/per unit MC-$18,000 (Aran)

: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.  (Amanda)

: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.  (Amanda)

===Honors===

===Honors===

9.  Suppose there is a sudden increase in the market price for a firm's widget.  The firm will hire more employees to produce more output until the point where the value of its marginal product of labor equals its _____________.  [Hint: the answer is NOT simply "marginal cost"].

9.  Suppose there is a sudden increase in the market price for a firm's widget.  The firm will hire more employees to produce more output until the point where the value of its marginal product of labor equals its _____________.  [Hint: the answer is NOT simply "marginal cost"].

:Marginal cost of labor[, the wage rate]. (Duncan]

:Marginal cost of labor. (Duncan)

 

:The wage rate, which is the marginal cost of labor.  Match the marginal product of labor to the marginal cost of that same input, which is labor. (Instructor)

10.  Explain the following from the lecture: if inflation is 10% per year for three years, but one particular good keeps the same price during those three years, then its opportunity cost and real price actually decreased.

10.  Explain the following from the lecture: if inflation is 10% per year for three years, but one particular good keeps the same price during those three years, then its opportunity cost and real price actually decreased.

11.  Are "long run" average costs lower than "short run" average costs and, if so, why?

11.  Are "long run" average costs lower than "short run" average costs and, if so, why?

<br>(c) use as much material as possible until there are diminishing returns

<br>(c) use as much material as possible until there are diminishing returns

<br>(d) use resources such that their marginal products per unit cost are equal

<br>(d) use resources such that their marginal products per unit cost are equal

13.  Charity, revisited:  Sloan's charitable efforts (Sloan-Kettering) have lasted longer than his business efforts (General Motors).  Is this just by chance, or are there reasons why charity lasts longer than business?  Feel free to revisit the issue of the interplay between the free market and charity.

13.  Charity, revisited:  Sloan's charitable efforts (Sloan-Kettering) have lasted longer than his business efforts (General Motors).  Is this just by chance, or are there reasons why charity lasts longer than business?  Feel free to revisit the issue of the interplay between the free market and charity.

:I think this is possible, but not necessarily true. Marriage alone does not actually guarantee anything. Marriage would probably lead to a greatly efficient division of labor when the spouses fill the traditional roles: husband primarily making money, and wife helping to educate the kids and take care of the house. However if there is animosity between the spouses over these roles (this might have the same effect as transaction costs!) the efficiency will be impaired. But if the spouses are agreed to these roles (absence of transaction costs) then the division of labor will be extremely efficient. (Addison)

:I think this is possible, but not necessarily true. Marriage alone does not actually guarantee anything. Marriage would probably lead to a greatly efficient division of labor when the spouses fill the traditional roles: husband primarily making money, and wife helping to educate the kids and take care of the house. However if there is animosity between the spouses over these roles (this might have the same effect as transaction costs!) the efficiency will be impaired. But if the spouses are agreed to these roles (absence of transaction costs) then the division of labor will be extremely efficient. (Addison)