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| | :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) |
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| | + | :Note that many students said "diminishing" here, but that implies a greater decline than "decreasing" and also confuses this concept with the very different concept of "diminishing marginal utility." Note that "decreasing returns to scale" is a long run concept, and has nothing to do with "marginal" or short run concepts. (Instructor) |
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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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| | 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"]. |
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| − | :Marginal cost of labor[, the wage rate]. (Duncan] | + | :Marginal cost of labor[, the wage rate]. (Duncan) |
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| | + | :Match the marginal product of labor to the marginal cost of that same input, which is labor (Instructor) |
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| | 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. |
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| | + | :Opportunity cost is relative to alternatives which in this case is higher causing the opportunity cost to decrease. The real price is adjusted for inflation. (Sarah) |
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| | 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? |
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| | <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 |
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| | + | :D (Kate) |
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| | + | :D is the correct choice because if the marginal product per unit cost for any input were lower than the others, then there would be an inefficiency because that input would not be producing as much as the others. The amount of that input should be adjusted to increase its marginal product per unit cost up to the level of the others, for greater overall profit. (Instructor) |
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| | 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. |