Exam 6: Cost Analysis

A law firm will be paid $500 to send one of its lawyers to a client to take a routine deposition.The firm can send a 2nd year lawyer whose usual billing rate is $150 per hour and who is currently working on a lucrative tax deal,or it can send a 4th year associate (billing rate $200 per hour)who is currently overseeing the selection and hiring of law students as summer associates.Based on this information,the firm should send:

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Question 1

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The production manager of a clothing manufacturer estimates that the total annual cost of producing men's suits is given by the equation: C = 5,000 + 4,100Q - 8Q2 + 0.004Q3.If the market price of suits is constant,what is the shutdown level of output? What is the minimum price the firm can accept?

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Question 2

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The shutdown point under competitive conditions occurs at the minimum point of the average variable cost [AVC] curve.From the total cost equation,variable cost [VC] = 4,100Q - 8Q² + 0.004Q³,and,in turn,AVC = 4,100 - 8Q + 0.004Q².To find minimum average variable cost,∂(AVC)/∂Q = -8 + 0.008Q should be equal to zero.The solution is Q = 1,000 units.The value of minimum AVC is: 4,100 - 8(1,000)+ 0.004(1,000)² = $100.Therefore,the lowest price the firm can accept is $100 per suit.

The average variable cost of producing 1,2,3,and 4 units of a product is respectively equal to $5,$6,$7,and $8.Find the marginal cost of the first four units of output.

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Question 3

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The average variable cost [AVC],variable cost [VC],and marginal cost [MC] are given in the following table.The values are in dollars.

Assume that the minimum efficient scale for a typical firm in an industry is 2 million units.The estimated output for the whole industry is 6 million units.Therefore,one can conclude that:

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Question 4

In the short run,if the marginal product of labor is decreasing,then:

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Question 5

Three college students consider the option of forming a lawn care and landscaping business during their summer vacation.They estimate the following costs: Their projected revenue depends on the number of lawns serviced.The price per job is $30.The going wage for a typical unskilled college student is about $2,400 for the summer months.Derive an equation for total accounting profit and total economic profit.Should the students launch the business if they expect to service about 200 lawn jobs during the summer?

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Question 6

The average fixed cost for a firm _____.

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Question 7

Mexico is capable of producing 20 auto tires or 16 microcircuits per labor hour.Brazil is capable of producing 24 auto tires or 24 microcircuits per labor hour.Based on this information,we can conclude that:

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Question 8

When a firm's production function exhibits constant returns to scale:

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Question 9

A firm's total cost function is: C = 50 + 6Q + 2Q2. (a)Compute the level of output that minimizes average total cost [AC].

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Question 10

If short-run average cost is increasing then:

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Question 11

When average total cost is at its minimum point:

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Question 12

Accounting profit differs from economic profit because:

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Question 13

Bill gives up his present job in Delaware to pursue a graduate school program in New York.What is the opportunity cost of his decision?

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Question 14

Which of the following correctly defines the minimum efficient scale for a firm?

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Question 15

The table gives the short-run production data for a manufacturing firm.Compute average cost and marginal cost for the output levels shown in the table.

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Question 16

A profit-maximizing firm should shut down in the short run if:

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Question 17

What is meant by economies of scope?

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Question 18

Assume that an investor invests $100,000 in a business venture.He earns an economic profit of $5,000.If the rate of return on an investment of equal risk is 10%,what is the rate of return that he earned on his investment?

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Question 19

If a firm were to stop production of its only product,the firm's total cost will be equal to _____.

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Question 20

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The production manager of a clothing manufacturer estimates that the total annual cost of producing men's suits is given by the equation: C = 5,000 + 4,100Q - 8Q2 + 0.004Q3.If the market price of suits is constant,what is the shutdown level of output? What is the minimum price the firm can accept?

The average variable cost of producing 1,2,3,and 4 units of a product is respectively equal to $5,$6,$7,and $8.Find the marginal cost of the first four units of output.

Assume that the minimum efficient scale for a typical firm in an industry is 2 million units.The estimated output for the whole industry is 6 million units.Therefore,one can conclude that:

In the short run,if the marginal product of labor is decreasing,then:

The average fixed cost for a firm _____.

Mexico is capable of producing 20 auto tires or 16 microcircuits per labor hour.Brazil is capable of producing 24 auto tires or 24 microcircuits per labor hour.Based on this information,we can conclude that:

When a firm's production function exhibits constant returns to scale:

A firm's total cost function is: C = 50 + 6Q + 2Q2. (a)Compute the level of output that minimizes average total cost [AC].

If short-run average cost is increasing then:

When average total cost is at its minimum point:

Accounting profit differs from economic profit because:

Bill gives up his present job in Delaware to pursue a graduate school program in New York.What is the opportunity cost of his decision?

Which of the following correctly defines the minimum efficient scale for a firm?

The table gives the short-run production data for a manufacturing firm.Compute average cost and marginal cost for the output levels shown in the table.

A profit-maximizing firm should shut down in the short run if:

What is meant by economies of scope?

Assume that an investor invests $100,000 in a business venture.He earns an economic profit of $5,000.If the rate of return on an investment of equal risk is 10%,what is the rate of return that he earned on his investment?

If a firm were to stop production of its only product,the firm's total cost will be equal to _____.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

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