Deck 8: Production and Cost in the Short Run

Question 1

refer to the following:


-What is average total cost when 200 units of output are produced?

A) $2.30
B) $2.50
C) $4.00
D) $4.80
E) none of the above

Answer 1

$4.80

Question 2

refer to the following:


-What is the marginal cost of the 250th unit of output?

A) $0.14
B) $2.40
C) $4.00
D) $7.40
E) none of the above

Answer 2

$7.40

Question 3

refer to the following:
Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed input is $500.

-What is average variable cost?

A) $0.63
B) $1.60
C) $3.20
D) $10.00
E) none of the above

Answer 3

$1.60

Question 4

refer to the following:
Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed input is $500.

-What is the marginal cost?

A) $0.63
B) $0.94
C) $1.60
D) $3.20
E) none of the above

Question 5

refer to the following:
Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed input is $500.

-What is average total cost?

A) $0.825
B) $0.63
C) $1.80
D) $4.10
E) none of the above

Question 6

The next 6 questions refer to the following:


-What is average fixed cost when 200 units of output are produced?

A) $2.80
B) $80
C) $150
D) $1.50
E) none of the above

Question 7

refer to the following:

The wage rate is $600 and total fixed cost is $15,000.

-When there are 40 workers, what is average variable cost?

A) $0.23
B) $5.00
C) $4.10
D) $6.00
E) $12.00

Question 8

refer to the following:
The capital stock is fixed at 40 units, the price of capital is $15 per unit, and the price of labor is $80 per unit.


-If the firm produces 180 units of output, what is total variable cost?

A) $1,200
B) $1,800
C) $14,400
D) $17,100
E) none of the above

Question 9

refer to the following:
The capital stock is fixed at 40 units, the price of capital is $15 per unit, and the price of labor is $80 per unit.


-How much does the 50th unit of output add to the firm's total cost?

A) $6.67
B) $10
C) $400
D) $600
E) none of the above

Question 10

refer to the following:


-In the above figure, what is the AVERAGE variable cost of producing 5 units of output?

A) $12
B) $20
C) $40
D) $60
E) $80

Question 11

For each of the following decisions determine whether the manager is in

-A grocery store manager decides to stay open 24 hours a day rather than 16.

A) short run
B) long run

Question 12

For each of the following decisions determine whether the manager is in

-A grocery store chain decides to open another store in the city.

A) short run
B) long run

Question 13

For each of the following decisions determine whether the manager is in

-An office manager decides to add 5 new PC's.

A) short run
B) long run

Question 14

For each of the following decisions determine whether the manager is in

-An office manager decides to close the old office and move to a larger one.

A) short run
B) long run

Question 15

For each of the following decisions determine whether the manager is in

-A university president decides to build three new classroom buildings to cope with an expected increase in students.

A) short run
B) long run

Question 16

For each of the following decisions determine whether the manager is in

-A university president decides to increase faculty teaching loads to cope with an expected increase in students.

A) short run
B) long run

Question 17

Firm A plans to produce 500 units per day of good X. The firm can choose either of the following two input combination t produce 500 units per day.

To obtain the services of labor and capital for a day, firm A must pay wages of $100 per unit of labor and $80 per unit of capital. For firm A, process ________ (1, 2) is economically efficient because the efficient process costs $___________ compared with $__________ for the inefficient process. Show your work here:

Question 18

8-7F In order to answer this question you should fill in the blanks in the following table.
‪
-At 2 units of labor, TP = ______ and AP = ______.

Question 19

8-7F In order to answer this question you should fill in the blanks in the following table.
‪
-At 3 units of labor, AP = ______ and MP = ______.

Question 20

8-7F In order to answer this question you should fill in the blanks in the following table.
‪
-At 4 units of labor, TP = ______ and AP = ______.

Question 21

Fill in the blank.

-The definition of the long run is _________________________________.

Question 22

Fill in the blank.

-The definition of the short run is ________________________________.

Question 23

A firm is using a single variable input, labor, with a fixed input, capital. If the amount of capital is increased,
-the total product curve will ______.

Question 24

A firm is using a single variable input, labor, with a fixed input, capital. If the amount of capital is increased,
-the average product curve will ______.

Question 25

A firm is using a single variable input, labor, with a fixed input, capital. If the amount of capital is increased,
-the marginal product curve will ______.

Question 26

Use the following figure, showing a firm's marginal and product curves for labor, the only variable input, to answer the next three questions. Labor is the only variable input. The wage rate of labor is $200 and the fixed cost is $6,000.

- When average variable cost reaches its minimum,
a. output is ________ units.
b. AVC is $________ and MC is $________ at this level of output.
c. ATC is $________.

Question 27

Use the following figure, showing a firm's marginal and product curves for labor, the only variable input, to answer the next three questions. Labor is the only variable input. The wage rate of labor is $200 and the fixed cost is $6,000.

-When 15 workers are hired,
a. output is ______ units.
b. AVC is $______ and MC is $______ at this level of output.
c. AVC is ______ (increasing, decreasing) and MC is ______ (increasing, decreasing) at this level of output..

Question 28

Use the following figure, showing a firm's marginal and product curves for labor, the only variable input, to answer the next three questions. Labor is the only variable input. The wage rate of labor is $200 and the fixed cost is $6,000.

-When 40 workers are hired,
a. output is ______ units.
b. AVC is $______ and MC is $______ at this level of output.
c. AVC is ______ (increasing, decreasing) and MC is ______ (increasing, decreasing) at this level of output.

Question 29

According to production engineers, the firm's production function gives the following outputs that can be produced from various combinations of labor and capital. The firm can purchase labor services (w) for $20 per unit and capital services (r) for $40 per unit.
‪
-If the firm wishes to produce 87 units of output, which input combination is technically efficient: 5L and 1K, 4L and 2K, 3L and 3K, or 2L and 4K? Explain your answer.

Question 30

According to production engineers, the firm's production function gives the following outputs that can be produced from various combinations of labor and capital. The firm can purchase labor services (w) for $20 per unit and capital services (r) for $40 per unit.
‪
-If the firm wishes to produce 87 units of output, which input combination is economically efficient: 5L and 1K, 4L and 2K, 3L and 3K, or 2L and 4K? Explain your answer.

Question 31

According to production engineers, the firm's production function gives the following outputs that can be produced from various combinations of labor and capital. The firm can purchase labor services (w) for $20 per unit and capital services (r) for $40 per unit.
‪
-If input prices change to $40 per unit of labor (w = 40) and $20 per unit of capital (r = $20), what is the economically efficient input combination to produce 87 units? Explain.

Question 32

According to production engineers, the firm's production function gives the following outputs that can be produced from various combinations of labor and capital. The firm can purchase labor services (w) for $20 per unit and capital services (r) for $40 per unit.
‪
-Suppose the firm operates in the short run with 4 units of capital. Does the firm experience diminishing returns? Explain using the production data in the preceding table.

Question 33

According to production engineers, the firm's production function gives the following outputs that can be produced from various combinations of labor and capital. The firm can purchase labor services (w) for $20 per unit and capital services (r) for $40 per unit.
‪
-What is the marginal product of the fifth unit of labor when K = 1? K = 2? K = 3? K = 4? Explain the pattern in labor productivity.