Exam 7: The Production Process: the Behavior of Profit-Maximizing Firms

Use the information provided in Table 7.2 below to answer the questions that follow. Table 7.2 Inputs Required to Produce a Product Using Alternative Technologies Technology Units of Capital Number of Employees A 16 8 B 12 12 C 8 20 D 6 24 -Refer to Table 7.2. If the hourly wage rate is $10 and the hourly price of capital is $50, which production technology should be selected?

When Burning Bob's Salsa House hires one worker, 30 customers can be served in an hour. When Burning Bob's Salsa House hires two workers, 50 customers can be served in an hour. The marginal product of the second worker is ________ customers served per hour.

Refer to Scenario 7.1 below to answer the questions that follow. SCENARIO 7.1: You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. -Refer to Scenario 7.1. A yearly normal rate of return for your computer software firm would be

Refer to Scenario 7.3 below to answer the questions that follow. SCENARIO 7.3: Upon graduating with an accounting degree, you open your own accounting firm of which you are the sole employee. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of $60,000 annually. Last year you earned a total revenue of $100,000. Rent and supplies last year were $50,000. -Refer to Scenario 7.3. Your annual operating profit is

Use the information provided in Table 7.2 below to answer the questions that follow. Table 7.2 Inputs Required to Produce a Product Using Alternative Technologies Technology Units of Capital Number of Employees A 16 8 B 12 12 C 8 20 D 6 24 -Refer to Table 7.2. If the hourly price of labor is $10 and the hourly price of capital is $1, which production technology should be selected?

When total product is maximized, marginal product

Related to the Economics in Practice on page 156: For pineapple farmers in Ghana, the choice of how much fertilizer to use was highly dependent on how much fertilizer their more successful neighbor farmers used. This process of technology adoption is referred to as

The version of the law of diminishing returns that applies to production

Refer to the information provided in Figure 7.10 below to answer the questions that follow. Figure 7.10 -Refer to Figure 7.10. The slope of isocost AB is

You are certain that a normal rate of return is 18% for the computer industry. What do you expect for a normal rate of return in the computer software industry, which is considered to be much riskier than the computer industry?

Use the information provided in Table 7.1 below to answer the questions that follow. Table 7.1 Inputs Required to Produce a Product Using Alternative Technologies Technology Units of Capital Number of Employees A 4 18 B 6 12 C 8 8 D 12 6 -Refer to Table 7.1 above. Which technology is the most capital intensive?

Use the information provided in Table 7.2 below to answer the questions that follow. Table 7.2 Inputs Required to Produce a Product Using Alternative Technologies Technology Units of Capital Number of Employees A 16 8 B 12 12 C 8 20 D 6 24 -Refer to Table 7.2. Which technology is the most capital intensive?

The Sweet Success Bakery sells 400 cakes at a price of $10 per cake. Its total economic costs for producing 400 cakes are $500. The Sweet Success Bakery's economic profits are

Assume that the relative prices of capital and labor have not changed. As a firm's expenditures for capital and labor increase, its isocost line

If marginal product is greater than average product, then

There are 100 dog kennels in Atlanta. An economist studying the pricing behavior of dog kennels tells you that she is limiting her analysis to a time period that does not allow for any new dog kennels to enter the industry or for any established dog kennels to leave the industry. The time period this economist referred to is the

Refer to the information provided in Figure 7.10 below to answer the questions that follow. Figure 7.10 -Refer to Figure 7.10. The slope of isocost CE is

You own a building that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore. The value of the building in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to open a hardware store. The opportunity cost of using this building for a hardware store is

Refer to the information provided in Figure 7.7 below to answer the questions that follow. Figure 7.7 -Refer to Figure 7.7 above. If Roller Skates Unlimited moves from isoquant A to isoquant B, the number of roller skates produced

Refer to Scenario 7.4 below to answer the questions that follow. SCENARIO 7.4: A lawn service company has the following production possibilities. With one, two, three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day, respectively. -Refer to Scenario 7.4. Diminishing returns to labor set in with the ________ worker.