ECON312 week 3 Homework 2018
Maryland farmers turn from tobacco to flowers
Maryland tobacco farmers will be subsidized if they switch from growing tobacco to growing crops such as flowers and organic vegetables. How does offering farmers a payment to exit tobacco growing influence the opportunity cost of growing tobacco? What is the opportunity cost of using the equipment owned by a tobacco farmer?
Offering farmers a payment to exit tobacco growing _______ the opportunity cost of growing tobacco.
The opportunity cost of using the equipment owned by a tobacco farmer is _______.
increases; the next best alternative forgone, which could be the production of flowers and organic vegetables
increases; the implicit cost of using the tobacco equipment
decreases; the explicit cost of using the tobacco equipment
decreases; the sum of the implicit and explicit costs of using the tobacco equipment
does not change; the next best alternative forgone, which could be the production of flowers and organic vegetables
Perfect competition is characterized by all of the following EXCEPT
firms produce an identical product.
no restrictions on entry into or exit from the industry.
buyers and sellers are well informed about prices.
a large number of buyers and sellers.
considerable advertising by individual firms.
Which of the following illustrates economies of scale, diseconomies of scale, and constant returns to scale?
Liza's average total cost changes from $4.50 to $2.20 when she increases salad production from 7 to 9 an hour.
Sam's average total cost changes from $1.30 to $2.80 when he increases smoothie production from 5 to 8 gallons an hour.
Tina's average total cost remains at $3 when she increases pizza production from 12 to 13 an hour.
Sam faces economies of scale; Liza faces diseconomies of scale; Tina faces constant returns to scale.
Sam faces economies of scale; Tina faces diseconomies of scale; Liza faces constant returns to scale.
Tina faces economies of scale; Sam faces diseconomies of scale; Liza faces constant returns to scale.
Liza faces economies of scale; Sam faces diseconomies of scale; Tina faces constant returns to scale.
Jennifer owns a pig farm near Salina, Kansas. Last year she earned $39,000 in total revenue while incurring $38,000 in explicit costs. She could have earned $27,000 as a teacher in Salina. These are all her revenue and costs. Therefore Jennifer earned an
economic profit of $1,000.
accounting profit of $1,000 but incurred an economic loss of $65,000.
None of the above answers is correct.
accounting profit of $1,000 but incurred an economic loss of $26,000.
accounting profit of $1,000 but incurred an economic loss of $38,000.
The main source of economies of scale is
reductions in the price of factors of production.
the ability to hire less labor.
increasing average costs.
decreasing marginal product.
greater specialization of both labor and capital.
Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should
produce this batch of cookies because their MR exceeds their MC.
produce this batch of cookies because they will help lower her average fixed cost.
not produce this additional batch.
charge $120 for this batch.
Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average total cost equals
As a typical firm increases its output, its marginal cost
increases at first and then decreases.
is negative at first and then positive.
decreases at first and then increases.
To produce more output in the short run, a firm must employ more of
its fixed resources.
Firms cannot produce more output in the short run.
its variable resources.
all its resources.
the least costly resources regardless of whether they are fixed or variable.
The market demand curve in a perfectly competitive market is ________ and the demand curve for a perfectly competitive firm's output is ________.
downward sloping; horizontal
downward sloping; downward sloping
downward sloping; upward sloping
horizontal; downward sloping
Quantity (bushels of rutabagas)	Total revenue (dollars)	Total cost (dollars)
0	0	12
1	10	22
2	20	28
3	30	30
4	40	31
5	50	34
6	60	45
7	70	59
8	80	80
The above table has the total revenue and total cost schedule for Omar, a perfectly competitive grower of rutabagas. Omar's total profit is maximized when he produces ________ bushels of rutabagas.
If concerns about mad-cow disease impose economic losses on the perfectly competitive cattle ranchers, exit by the ranchers combined with no further changes in the demand for beef will force the price of beef to
fluctuate, with the trend being lower prices.
probably change, but more information about the market supply of beef is needed to answer the question.
Quantity of labor (workers)	Total product
(lawns mowed per week)
Kenya owns a lawn mowing company. His total product schedule is in the above table. Decreasing marginal returns first occur with the
The above figure illustrates a perfectly competitive firm. If the market price is $10 a unit, to maximize its profit (or minimize its loss) the firm should
produce 30 units.
produce more than 30 units and less than 40 units.
produce 40 units.
produce between 10 and less than 30 units.
Quantity of labor (workers)	Total product
(dogs groomed per week)
Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average fixed cost equals
When an economist uses the term "cost" referring to a firm, the economist refers to the
price of the good to the consumer.
explicit cost of producing a good or service but not the implicit cost of producing a good or service.
implicit cost of producing a good or service but not the explicit cost of producing a good or service.
cost that can be actually verified and measured.
opportunity cost of producing a good or service, which includes both implicit and explicit cost.
Quantity of labor (workers)	Total product
(dogs groomed per week)
Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her average fixed cost equals
U.S. Steel Lays Off 756
With a drop in the demand for steel pipe and tube, U.S. Steel Corporation will idle plants in Ohio and Texas and lay off 756 workers.
Source: The Wall Street Journal , January 6, 2015
As U.S. Steel responded to the fall in demand, how did its marginal cost change?
What can you say about minimum AVC in the plants that closed?
As U.S. Steel responded to the fall in demand, its marginal cost ______.
The minimum average variable cost in the plants that closed must have been ______.
decreased; greater than the market price
decreased; less than the market price
decreased; equal to average fixed cost
increased; less than the market price
increased; greater than the market price
The law of decreasing returns states that as a firm uses more of a
fixed input and a variable input, the marginal product of the fixed input and the marginal product of the variable input both decrease.
fixed input, with a given quantity of variable inputs, the marginal product of the fixed input eventually decreases.
variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.
variable input, output will begin to fall immediately.
variable input, total output will increase indefinitely.
GM cuts jobs at its Australian manufacturing unit
GM will cut 500 jobs, or about 12% of its workforce, at its Australian plant because of a sharp fall in demand for its locally-made "Cruze" small car.
Source: The Wall Street Journal , April 8, 2013
As GM cuts its workforce, how will the marginal product and average product of a worker change in the short run?
Suppose that before the cuts the marginal product of GM workers is below their average product.
As the number of workers decreases, the marginal product of a GM worker ______ and the average product of a GM worker ______ in the short run.
does not? change; does not change
Output (pizzas per hour)	Total cost
Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her total variable cost of producing four pizzas per hour is
Some amount, but more information is needed to determine this total variable cost.
Airlines seek new ways to save on fuel as costs soar
Fuel is an airline's biggest single expense. In 2008, the cost of jet fuel rocketed. Airlines tried to switch to newer generation aircraft, which have more fuel-efficient engines.
Source: The New York Times , June 11, 2008
Explain how a technological advance that makes airplane engines more fuel efficient changes an airline's average variable cost, marginal cost, and average total cost.
A technological advance that makes an airplane engine more fuel efficient ______ an airline's average variable cost and ______ an airline's marginal cost.
decreases; does not change
does not change; decreases
Labour (Workers)	Output (bikes)	Total fixed costs (dollars)	Total variable costs (dollars)	Total costs (dollars)
0	0	200	0	200
1	20	200	100	300
2	50	200	200	400
3	60	200	300	500
4	64	200	400	600
The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total fixed cost of producing 64 bikes?
California's commercial drone industry is taking off
Customers are finding ever more creative ways to use drones, and 3E Robotics Inc., America's largest producer of consumer drones, expects sales to soar.
Source: Los Angeles Times, June 13, 2015
Explain what is happening in the market for commercial drones.
How would you expect the price of a drone to change in the short run and the long run?
How would you expect the economic profit of a drone producer such as 3D Robotics to change in the short run and in the long run?
In the short run, the equilibrium price of a drone _______ and the economic profit of drone producers _______.
rises; remains unchanged
falls; remains unchanged
Coffee king Starbucks raises its prices
Starbucks will raise its price because the wholesale price of milk has risen by nearly 70% in the past year. There's a lot of milk in those Starbucks lattes, noted John Glass, CIBC World Markets restaurant analyst.
Source: USA Today, July 24, 2007
Is the cost of milk a fixed cost or a variable cost?
Describe how the increase in the price of milk changes Starbucks' short-run cost curves.
The cost of milk is a ______ cost. An increase in the cost of milk shifts the ______ curves upward.
variable; total cost, total variable cost, and total fixed cost
fixed; average total cost, average fixed cost, total cost, and total fixed cost
fixed; total cost and average total cost
variable; average total cost, average variable cost, total cost, total variable cost, and marginal cost
The long run is a time period that is
five years or longer.
long enough to change the amount of labor employed but not to change the size of the plant.
long enough to change the amount of labor employed.
long enough to change the size of the firm's plant and all other inputs.
None of the above answers describes the long run.
A perfectly competitive firm is producing 50 units of output, which it sells at the market price of $23 per unit. The firm's average total cost is $20. What is the firm's total revenue?
Metropolitan Museum completes round of layoffs
The museum cut 74 jobs and 95 other workers retired. The museum also laid off 127 other employees in its retail shops. The cut in labor costs is $10 million, but the museum expects no change in the number of visitors.
Source: The New York Times, June 22, 2009
Explain how the job cuts and shop closings will change the museum's short-run average cost curves and marginal cost curve.
A cut in labor but no change in output increases the marginal product of labor.
What is the effect on the marginal cost curve?
A rightward movement along the marginal cost curve occurs.
The marginal cost curve shifts upward.
A leftward movement along the marginal cost curve occurs.
The marginal cost curve shifts downward.
Kenya owns a lawn mowing company. His total product schedule is in the above table. The marginal product of the fourth worker is ________ lawns mowed per week.
Output (gallons of ice cream per hour)	Total cost (dollars)
The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the above table. Based on the table, the marginal cost of producing the fourth gallon of ice cream is