Exam 8: Technology, production, and Costs

If a firm experiences positive technological change,it is able to produce more output using the same inputs.

Article Summary Due to falling sales and lower profit margins, clothing retailer Aeropostale announced it would be closing more stores than originally planned. In August, the company announced it would be closing between 30 and 40 locations in 2013, up from the previously announced 15 to 20. Compared to the previous year, net sales fell 6 percent and the company reported a loss of $33.7 million for the second quarter of 2013, and the trend was expected to continue into the third quarter. Explaining the downturn, Aeropostale chief executive Thomas P. Johnson stated "Our business was pressured by a challenging teen retail environment with weak traffic trends and high levels of promotional activity." Source: Andrew Klips, "Aeropostale Losses Accelerate, Closing More Stores," equities.com, August 23, 2013. -Refer to the Article Summary.Use a graph to illustrate average total cost curves for Aeropostale before and after closing the 30 to 40 stores.Assume that after closing the stores,Aeropostale will be producing at minimum average total cost.

Figure 8-1 -Refer to Figure 8-1.The marginal product of the 7th worker is

A firm increased its production and sales because the firm's manager rearranged the layout of his factory floor.This is an example of

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon,Goldilocks.She gave up a salary of $40,000 per year,invested her savings of $30,000 (which was earning 5 percent interest)and borrowed $10,000 from a close friend,agreeing to pay 5 percent interest per year.In her first year,Golda spent $18,000 to rent a salon,hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material.Based on this information,what is the amount of her explicit costs?

Describe the relationship between marginal cost and average total cost.

Which of the following equations is correct?

Table 8-9 Fixed Cost Average Variable Cost Small plant \ 10,000 \ 2.00 Medium plant 15,000 1.30 Large plant 25,000 0.50 -Refer to Table 8-9.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 5,000 Clock Radios 8,000 Clock Radios 20,000 Clock Radios Small plant Medium plant Large plant 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.

Which of the following statements is false?

Table 8-7 Quantity of Lanterns Fixed Cost (dollars) Variable Cost (dollars) Total Cost (dollars) Average Total Cost (dollars) 75 200 170 370 4.93 80 200 230 430 5.36 90 200 7.67 100 200 810 115 200 11.8 117 200 1264 1464 12.5 120 200 1480 Table 8-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights. -Refer to Table 8-7.What is the marginal cost per unit of production when the firm produces 100 lanterns?

Figure 8-2 -Refer to Figure 8-2.The curve labeled "E" is

The long run refers to a time period

Figure 8-10 -Refer to Figure 8-10.Identify the minimum efficient scale of production.

Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory.In the following graph,the relationship between costs and output for the smaller factory is represented by the curve ATC₁,and the relationship between costs and output for the larger factory is represented by the curve ATC₂. a.If Argyle expects to produce 3,600 sweaters per month,should he build a smaller factory or a larger factory? Briefly explain? b.If Argyle expects to produce 5,000 sweaters per month,should he build a smaller factory or a larger factory? Briefly explain. c.If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6,500 sweaters per week,why isn't it also lower when Argyle produces 4,000 sweaters per week?

Economies of scale exist as a firm increases its size in the long run because of all of the following except

If four workers can produce 18 chairs a day and five can produce 20 chairs a day,the marginal product of the fifth worker is

Figure 8-2 -Refer to Figure 8-2.Diminishing returns to labor set in

Figure 8-3 Fancy Footwear manufactures shoes. Figure 8-3 shows Fancy Footwear's marginal product of labor and average product of labor curves in the short run. -Refer to Figure 8-3.Which of the following statements correctly describes the curves in the figure?

Consider a manufacturing operation that uses specialized machinery and labor to produce its output.In this case,the input that is not fixed in the short run is labor.

Which of the following statements correctly describes the distinction between technology and technological change?