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| | 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. |
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| | + | :An example of a short run cost is fixing a leak in the roof; an example of a long run cost is replacing the roof. (Nat) |
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| | :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) |
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| | 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.) |
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| | + | :Your marginal product (MP) from the 4th employee is 3, because he can fix 3 cars in an hour. Marginal cost (MC) - wage/MP, so the MC would be 12/3 = 4. Therefore, the minimum on average that you need to charge your customers is $4 per car, so that you will be earning back as much as it cost you to make the car. (Mary) |
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| | :3 cars per hour, $4, $4. (Jonathan S.) | | :3 cars per hour, $4, $4. (Jonathan S.) |