Economics Module 5

Question 1

A production function can best be described as which of the following?

Answer 1

The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time

Question 2

Marcus has four employees. The four employees produce 55 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 60 floral arrangements in a day. The fifth employee’s marginal product is __________.

Answer 2

5 floral arrangements in a day

Question 3

What does diminishing marginal productivity mean?

Answer 3

As you increase the amount of a variable input, its marginal product eventually gets smaller.

Question 4

The production of 12,000 candy bars per day requires 60 workers. The average product of each worker is ______________ candy bars per day.

Answer 4

200

Question 5

If the average product of labor is seven units of output per worker per day, the total output of 15 workers will be ______________ units per day.

Answer 5

105

Question 6

Currently, the marginal product of labor is 45 units per week. The average product of labor at the current level of output is 32 units per week. If the employer hires one more worker, the marginal product of labor will be 47 units per week. The average product of labor will ______________.

Answer 6

rise

Question 7

Currently, Frank has 10 employees. The marginal product of the 10^{th} worker is 25 units per week. The average product of the 10 workers is 20 units per week. If Frank hires one more worker, the marginal product of the 11^{th} worker will be 24 units per week. The average product of labor will ______________.

Answer 7

rise

Question 8

Fill in the missing value for A in the table below.

Answer 8

12

Total output rises from 10 to 22, a change of 12, while labor input rises by 1 unit.

Question 9

Fill in the missing value for B in the table below.

Answer 9

64

There are at least two ways to solve this. Using the hint, AP = 21.33 and L=3. 21.33*3 = 63.99 or 64. Or, you could add MP to the previous output: 44+20 = 64.

Question 10

Fill in the missing value for C in the table below.

Answer 10

30

Output is 120 and labor input is 4. 120/4 = 30.

Question 11

Diminishing marginal returns means that marginal product will eventually ______________ and the total product function will ______________ as production increases.

Answer 11

decrease; not change

Question 12

The slope of a firm’s production function will ______ as the amount of a variable input used increases if the input experiences diminishing marginal productivity.

Answer 12

decrease

Question 13

If the quantity of an input is fixed in the short run, its total cost will ______________ as output increases.

Answer 13

stay the same

Question 14

If the quantity of an input is variable in the short run, its total cost will ______________ as output increases.

Answer 14

increase

Question 15

If labor is the only variable input a firm owner uses and the wage rate is $200 per week, what is the firm owner’s variable cost per week if she hires 12 workers?

Answer 15

$2,400

Question 16

If at 500 units of output, total fixed cost is equal to $10,000 and total variable cost is equal to $15,000. Total cost is equal to _____.

Answer 16

$25,000

Question 17

At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to _____.

Answer 17

$16,000

Question 18

Consider this example: The total cost of producing 1,000 units of output is equal to $55,000 per week. The total cost of producing 1,010 units is equal to $55,500 per week. The marginal cost of increasing output from 1,000 units per week to 1,010 units per week is:

Answer 18

$50

Question 19

Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week, she would have to spend $6,100 per week. The marginal cost per hat is ______.

Answer 19

$20

Question 20

Using the information from the table below, what is the marginal cost of increasing output from 32 to 40 knit scarves per week if the weekly wage is $200?

Answer 20

$25

Total output changes by 8 scarves. Total cost changes by the weekly wage of one additional worker, which is $200. $200/8 = $25.

Question 21

Use the information from the table. If the weekly wage is $200, the marginal cost of increasing weekly production from 10 to 22 scarves per week is ______________ than the marginal cost of increasing weekly production from 40 to 46 scarves per week because the marginal product of the second worker is ______________ than the fifth worker.

Answer 21

lower, higher

The marginal product of the second worker is 12 while the marginal product of the fifth worker is 6. Therefore, the cost of each additional unit the fifth worker produces is twice as much as each unit the second worker produces.

Question 22

What are two of the reasons that average cost tends to have a “bowl” shape?

Answer 22

Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output

Question 23

The fixed cost of producing wedding cakes is $10,000 per month. The variable cost for producing 10 wedding cakes per month is $12,000. The average cost of producing 10 wedding cakes per month is ____.

Answer 23

$2,200

Question 24

Assume that instead of the cost of the three computer workstations and space being $5,000 per month, it is $10,000 per month. Match the number of workers to the correct marginal cost.

Answer 24

A = $30.00, B = $25, C = $23.08

Question 25

At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. If labor is the only variable input and the weekly wage is $1,600, how much labor is being used to produce 1,000 units of output?

Answer 25

10.0

Question 26

Juan wants to increase production at his confection shop. If he hires one more worker, he can increase output by 100 candies per week. A confection worker’s weekly wage is $200. Juan’s marginal cost of increasing output by 100 candies per week is ______.

Answer 26

$2.00

Question 27

In the short run, an increase in wages (the price of the variable input) will cause average cost to ______________ and marginal cost to ______________.

Answer 27

increase; increase

Question 28

In the short run, an increase in the price of one of the fixed inputs will cause average cost to ______________ and marginal cost to ______________.

Answer 28

increase; not change

Question 29

An increase in technology will cause the total product function to ______________ and average costs to ______________.

Answer 29

increase; decrease

Question 30

When the cost of inputs is constant, diminishing marginal returns means that marginal product will eventually ______ and marginal cost will eventually _______.

Answer 30

decrease; increase

Question 31

If accounting profits equal $10 million for a firm and the owners could likely earn $7 million in a similar business, the firm’s economic profit is ________.

Answer 31

$3 million

Question 32

Accountants tell a franchise owner that she earned $30,000 in profits last year. The owner knows that most of her business acquaintances earned at least $70,000 in profits in comparable franchises. Which of the following is true? Her firm earned an economic __________.

Answer 32

Loss of $40,000

Question 33

Select all explicit costs from the list below.

Answer 33

Wages

Raw materials

Rent

Question 34

Select all implicit costs from the list below.

Answer 34

Profit earned in similar businesses

Question 35

Economic profits are ______________ than accounting profits.

Answer 35

Always less

Question 36

A firm’s total cost function is given by
TC = C(Q) = 100 + 10Q + 0.5Q^2
What is the firm’s variable cost?

Answer 36

10Q + 0.5Q^2

Question 37

A firm’s total cost function is given by
TC = C(Q) = 100 + 10Q + 0.5Q^2
What is average total cost?

Answer 37

(100/Q) + 10 + 0.5Q

Question 38

A firm’s total cost function is given by
TC = C(Q) = 100 + 10Q + 0.5Q^2
What is average variable cost?

Answer 38

10 + 0.5Q

Question 39

A firm’s total cost function is given by
TC = C(Q) = 100 + 10Q + 0.5Q^2
What is average fixed cost?

Answer 39

100/Q

Question 40

Suppose you are earning $50,000 accounting profit in your current laundromat business. If your other options were to earn $50,000 accounting profit running a yogurt shop, or $45,000 being a florist, or $60,000 running a beauty shop, what is your economic profit?

Answer 40

A loss of $10,000.

Question 41

Gita is an auto mechanic and runs a small repair shop. She hires one mechanic at $20,000 per year, pays a monthly rent of $5,000 towards the lease of the premises where her repair shop is located, and spends $20,000 per year on materials needed for repairing cars and trucks. She has invested $40,000 of her own savings in heavy equipment (air and strut compressors, brake lathes, heavy-duty lifts etc.) that could earn her $4,000 per year if invested elsewhere. She has been offered $40,000 per year by a competitor to work as a mechanic for them and she estimates the value of income she could earn in her spare time to be $5,000. The repair shop’s total annual revenue is $250,000.

In the scenario presented in Question M9.07, is Gita making the best use of her resources (time and money) in terms of economic profit?

Answer 41

yes

Question 42

The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost.

Answer 42

decreasing; increasing

Question 43

Will a change in fixed costs change total cost?

Answer 43

yes

Question 44

Will a change in fixed costs change total variable cost?

Answer 44

no

Question 45

Will a change in fixed costs change average cost?

Answer 45

yes

Question 46

Will a change in fixed costs change marginal cost?

Answer 46

no

Question 47

Marginal cost is the slope of ___________.

Answer 47

the total cost curve

Question 48

With increasing marginal cost, if marginal cost is equal to average cost, average cost at this point must be ______________.

Answer 48

at its minimum point

Question 49

If average product is increasing as the variable input increases, which of the following is true?

Answer 49

Average cost must be decreasing

Question 50

Which of the following most likely represents a short-run business decision?

Answer 50

Aaron hires two additional workers to help cover the holiday rush at his shop.

Question 51

In the table below, what is the marginal product of the third worker?

Answer 51

55 units

subtract work of second worker from work of third worker

Question 52

Which of the following is a cause of diminishing marginal productivity?

Answer 52

In the short run, labor runs out of available capital as more labor gets added to the production process.

Question 53

The production of 75 sofas per week requires 15 workers. The average product of each worker is ______________ sofas per week.

Answer 53

5

Question 54

If the average product of labor is 12 units of output per worker per day when eight workers are hired, eight workers will be able to produce ______________ units per day.

Answer 54

96

Question 55

Currently, the marginal product of labor is 32 units per week. The average product of labor at the current level of output is 48 units per week. If the employer hires one more worker, the marginal product of labor will be 30 units per week. The average product of labor will ______________.

Answer 55

fall

Question 56

Fill in the missing value for A from the table below.

Answer 56

80

Change in output = 180-100 = 80. Change in labor =1. 80/1 = 80.

Question 57

Fill in the missing value for B from the table below.

Answer 57

240

Output at L = 3 = output at L=2 + MP: 180 + 60 = 240 (or Q = APL = 803 = 240).

Question 58

Fill in the missing value for C from the table below.

Answer 58

70

AP = output /L = 280/4 = 70.

Question 59

If the fixed cost of producing 50 units of output is $100,000 per year, the fixed cost of producing 100 units of output per year is _____.

Answer 59

$100,000

Question 60

In a model with only labor and capital as inputs, in the short run the amount of ______________ is fixed, while in the long run the amount of ______________ is variable.

Answer 60

either labor or capital; both labor and capital

Question 61

Santa Claus’s only variable input is labor. The wage he must pay is 200 candy canes per week. What is Santa’s total weekly variable cost if he hires 200 elves?

Answer 61

40,000 candy canes

Question 62

Variable cost ______________ while fixed cost ______________ as output ______________ in the short run.

Answer 62

rises; stays the same; increases

Question 63

At 600 units of output, total fixed cost is equal to $1,000 and total variable cost is equal to $12,000. Total cost is equal to _______.

Answer 63

$13,000

Question 64

At 2,000 units of output, the variable cost of production is $12,500 per week. Total cost of producing 2,000 units per week is $45,500. The fixed cost of producing 2,000 units of output per week is equal to ______.

Answer 64

$33,000

Question 65

Using the table below, calculate the marginal cost of the 4^{th}, 6^{th}, and 8^{th} units of output.

Answer 65

A=90, B=110, C=125

Question 66

Peter can produce 50 lunches per hour for $1,250. If he hires one more cook for $15 an hour, he can produce 55 lunches per hour. The marginal cost of expanding hourly lunch production from 50 to 55 is _____.

Answer 66

$3.00

Question 67

Using the information from the table below, what is the marginal product of the 4^{th} worker?

Answer 67

45.00 office chairs

Question 68

Using the information from the table above, if the monthly wage of an office chair factory worker is $2,160, what is the marginal cost of increasing output from 190 office chairs per month to 235 office chairs per month?

Answer 68

$48.00

Question 69

The fixed cost of producing surfboards is $5,000 per month. The variable cost for producing 15 surfboards is $36,000 per month. The average cost of producing 15 surfboards in a month is ______.

Answer 69

$2,733.33

Question 70

Using the table below, calculate the average cost of producing 80, 120, and 160 computers per month.

Answer 70

A = 197.50 , B = 150.00 , C = 128.13

Question 71

Using the table below, calculate the marginal cost of producing 80, 120, and 160 computers per month.

Answer 71

X = 45.00, Y= 55.00, Z = 62.50

Question 72

Samantha is evaluating whether to increase production at her book bindery. If she hires one more worker, she can increase output by 50 books per week. A book binder’s weekly wage is $250. Samantha’s marginal cost of increasing output by 50 books per week is ________.

Answer 72

$5.00

Question 73

Using the information in the question above, if Samantha’s average cost to bind books is $2.50 before hiring the additional book binder, her average cost to bind books will ______________ if she hires the additional worker.

Answer 73

increase

Question 74

When a firm earns zero economic profits, it does which of the following?

Answer 74

Has a positive accounting profit

Question 75

What gives the short-run marginal cost curve its shape?

Answer 75

Diminishing marginal returns in the short run.

Question 76

What effect does the new machine have on the firm’s output and why?

Answer 76

Increased output since the new machine adds more resources for production capability.

Question 77

Using your intuition and the Original and New Output tables, we can say the following about the relationship between marginal product of labor (MPL) and marginal cost of output (MC): There is an ________ relationship between MPL and MC. As MPL rises, MC will ________ , and as MPL diminishes, MC will ___________ . If there is an overall increase in MPL, there will be an overall ______ in MC.

Answer 77

inverse, fall, rise, decrease.

Question 78

At output equal to 100 the MP of labor is 5 and the AP of labor is 7. At output equal to 101 the MP of labor is 4. At output equal to 101 AP of labor will:

Answer 78

Fall below 7.

Question 79

The observation that increases in output get smaller as more of one input is added to production is called:

Answer 79

The law of diminishing marginal returns.

Question 80

In the table below, what is the Marginal Product of the second worker?

Answer 80

8

Question 81

In the table below, what is the Average Product of the third worker?

Answer 81

8

Question 82

At output equal to 100 the MC is 20 and the AC 18. At output equal to 101 the MC is 22. At output equal to 101 AC will:

Answer 82

Rise above 18

Question 83

If the marginal productivity of labor is rising at a certain level of output (while all other inputs remain unchanged), marginal cost must be:

Answer 83

Falling at that level of output.

Question 84

In the table below, what is the Marginal Cost of the 30th unit of output?

Answer 84

7

Question 85

In the table below what is the Average Cost of the 20th unit of output?

Answer 85

8.00