Exam 11: Technology, Production, and Costs

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total cost per day when she produces 50 gyros using two workers?

Figure 11-10 -Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Q_d units per period using plant size ATC₄. Now, following a permanent change in demand, it plans to cut production to Q_c units. What will happen to its average cost of production?

An expansion path shows

The ABC Company manufactures routers that are used to provide high-speed Internet service. ABC sells an average of 1,000 routers each month, but to exhaust economies of scale in its industry ABC would have to sell 3,000 routers each month. Therefore

Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move

Costs that change as output changes are called incremental costs.

Table 11-5 -Refer to Table 11-5. Suzette's Fancy Packaging subcontracts with Sunshineland Pecans to box dried fruit and nuts for Suzette's mail order business. Suzette rents space for her factory for $400 a week in a nearby strip mall. She can hire temporary workers for $200 a week. Table 11-5 above shows her output and cost data. Use the table to answer questions a-e. a. Complete the table. b. In the last week of summer Suzette closes her business to go on a family vacation. What are her costs during that week? c. In one week Suzette exactly breaks even. If her revenue for the week is $1,200, how many boxes of fruit and nuts did she produce? d. Judging from the marginal product of labor data, would you say that Suzette had to settle for increasingly unproductive workers? Explain your answer. e. Suzette has received an order for 1,500 boxes of nuts per week for the next 3 months. If she expects the trend in the marginal product of labor will continue in the same direction, what do you think she should do? Should she not commit until she can move to a larger space or should she just hire more workers? Explain your answer.

An important reason why diseconomies of scale arise is because firms may have to hire lower-skilled workers as firms expand.

The slope of an isoquant measures

When a firm experiences negative technological change it can produce the same output with fewer inputs.

When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is

Figure 11-1 -Refer to Figure 11-1. The average product of the 4th worker

If production displays constant returns to scale, then all economies of scale have been exhausted.

Minimum efficient scale is defined as the level of output at which

Table 11-6 -Refer to Table 11-6. Alicia Gregory owns a foot massage business. She leases 4 computer-controlled massage booths, for which she pays $125 per day. She cannot increase the number machines she leases without giving the manufacturer 3 months notice. She can hire as many workers as she wants at a cost of $75 per day per worker. These are the only two inputs she uses in her business. Use this information to fill in the columns in the above table.

On an isoquant/isocost graph, the least cost input combination of producing a given output is

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

Figure 11-3 Fancy Footwear manufactures shoes. Figure 11-3 shows Fancy Footwear's marginal product of labor and average product of labor curves in the short run. -Refer to Figure 11-3. Which of the following statements correctly describes the curves in the figure?

Table 11-9 -Refer to Table 11-9. Clock It To Me manufactures clock radios. The table above shows estimates of fixed cost per period and average variable cost for three possible plant sizes. a. You are employed as the company's cost accountant and have been asked to prepare cost estimates for various output levels for each of the three possible plant sizes. Record your calculations in the table below. Average Cost of Production b. For each of the three output levels, which plant size will generate the lowest average total cost of production? c. Suppose the firm currently sells 8,000 clock radios per period (using the optimal plant size for this output level). Now, however, it has just secured a long-term contract to supply 20,000 clock radios per period. In the short run, what is the average total cost of producing 20,000 clock radios? Provide a numerical value based on your answer in part a. d. What happens to average total cost of production in the long run? Provide a numerical value based on your answer in part a.

Assume that you observe the long-run average cost curve of ACME Bookstores, a national chain. Starting from the point on the curve where output is zero and moving to the right, which of the following lists the behavior of long-run average costs in the correct sequence (that is, which will be observed first, second, etc.)?