Exam 7: Costs

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the total cost when using four units of labor is $____.

A firm's long-run total cost function is given by LTC = 115,000Q - 500Q² + Q³, where long-run marginal cost is given by LMC = 115,000 - 1,000Q + 3Q². At what range of output does this firm have economies of scale?

(Figure: Capital and Labor III) Suppose the firm is producing at point Z and wants to reduce its output to Q₁. Which of the following statements is TRUE?

A firm has a production function of , the rental rate of capital is $15, and the wage rate is $10. In the short run, is fixed at 100 units. a. What is the short-run production function? b. What is the short-run demand for labor? c. What are the firm's short-run total cost and short-run marginal cost? Use calculus.

(Figure: Capital and Labor II) Suppose the firm is producing at point A. If the firm wants to increase output from Q₁ to Q₂, it will:

Fran is considering permanently closing down her beauty salon. A consultant advises her that if she stays open for business, she will have operating revenues of $300,000 and operating costs of $280,000. In addition, Fran has paid $40,000 for fixtures that can be resold for $15,000 after she closes the beauty salon. The value of Fran's beauty salon, if it remains open, is $____.

Use the following table to answer the question. At an output level of 5, the total cost is $____.

A firm with decreasing returns to scale would see:

Corporate bankruptcy restructuring allows a firm to treat its debt payments as:

(Figure: Total Cost and Quantity of Output VI) Answer the following question. At an output level of 1, the average total cost is $____.

Suppose that Bella's Bagels has a total cost function given by Find the quantity that minimizes average variable costs for Bella's Bagels.

A business anticipates future operating revenues of $200 million, future operating costs of $150 million, and sunk costs of $60 million. This business should:

An entrepreneur gathers the following information to make a decision on whether to stay open for business or to shut down permanently: Future operating revenues = $18 million Future operating costs = $14 million Sunk costs = $8 million The entrepreneur should:

A firm has a production function of Q = KL + L, where MP_L = K + 1 and MP_K = L. The Wage rate (W) is $100 per worker and the rental (R) is $100 per unit of capital. In the short run, capital (K) is fixed at 4 and the firm produces 100 units of output. The firm's long run total cost of producing 100 units of output is $____.

A firm has a production function of , the rental rate of capital is $50, and the wage rate is $15. In the short run, Is fixed at 80 units. The short-run marginal cost function is MC = ____.

Sanjay's hair salon has a total cost function given by . Sanjay's marginal cost is MC = ____.

(Figure: Cost and Quantity of Output IV) Using the information provided in Figure 7.18, graph the firm's MC, ATC, and AVC curves in one diagram. Indicate the minimum points on the AVC and ATC curves. In a separate diagram, show the firm's AFC curve.

Complete the following table.

Use the following table to answer the question. At an output level of 1, the marginal cost is $____.

Sanjay's hair salon has a total cost function given by a. What are Sanjay's average total cost, average variable cost, and marginal cost? b. Find the quantity that minimizes ATC.