Exam 7: Costs

For the following, please answer "True" or "False" and explain why. -A consumer purchases a book by driving across town to a bookstore,standing in line for five minutes to pay the cashier,and then pays $5.The same book is purchased by another consumer who spends two minutes placing the order over the Internet for $10.The book necessarily cost the first consumer less.

The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then MC equals

A firm currently employs five units of capital.When the firm adds a sixth unit of capital,it is able to reach a lower average cost for a greater quantity of output.What does this tell you about the shape of the long-run average cost curve and are economies of scale occurring? Explain briefly.Does this necessarily imply increasing or decreasing returns to scale in production or is it ambiguous? Explain briefly.

Suppose the short-run production function is q = L⁰.⁵.If the marginal cost of producing the tenth unit is $5,what is the wage per unit of labor?

A firm built an inventory of 16-bit chips for $50,000 last year.However,the introduction of 32-bit chips lowers the market price for 16-bit chips and the inventory can only be sold for $40,000 now.What is the opportunity cost of the inventory of 16-bit chips?

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q.The marginal cost of the 5th T-shirt is

For the following, please answer "True" or "False" and explain why. -If a pharmaceutical firm is researching ways to improve its heartburn medicine and discovers a technique that will improve its allergy medicine,one could conclude that economies of scope exist in that industry.

Your company makes copper pipes.Over the years,you have collected a large inventory of raw copper.The production process involves melting the copper and shaping it into pipes.You also have a large stockpile of pennies.Suppose the price of copper rises so much that the copper in the penny becomes worth more than one cent.Should you melt down your pennies?

A specific tax of $1 per unit of output will affect a firm's

To dig a trench,each worker needs a shovel.Workers can only use one shovel at a time.Workers without shovels do nothing,and shovels cannot operate on their own.What kind of production technology is this? Graphically (with isocost and isoquant lines)determine the optimal number of shovels and workers used by a firm to dig two trenches when w = r = 10.What will be the (long-run)total cost of the two trenches? What will happen if the rental rate drops to $5 while the wage remains at $10? Add the relevant lines to your graph and compute the new optimal quantity of inputs and total cost.

For the following, please answer "True" or "False" and explain why. -When buying a piece of equipment,it is always best for the firm to pay cash instead of borrowing the funds since this renders the equipment less costly.

For the following, please answer "True" or "False" and explain why. -"If the wage rate paid to one form of labor is twice the cost of another form of labor,the first type of labor must be twice as productive." Comment.

A local non-profit group prints a weekly newsletter.Professional typists earn $10 per hour and can type 2 pages per hour.Unpaid volunteers can type only 1 page per hour.Measuring hours of professional typist services on the vertical axis and hours of unpaid volunteer typist services on the horizontal axis,draw the relevant isoquant and isocost curves if the newsletter is 10 pages long.What input mix is chosen by the non-profit group if they wish to minimize the cost of the newsletter? If the group will reimburse volunteers for expenses (lunch,driving),how much must the reimbursement be for your answer to change?

This question has you determine the effect of a tax on labor on the long-run cost function.Consider a firm with the production function f(L,K)= LK.The wage rate and rental rate on capital are w and r,respectively. a.Using the Lagrangian,derive the long-run cost function for this firm. b.Suppose the government taxes labor at by an amount t per unit of labor.Rewrite the long-run cost function including the tax.Hint: the effective wage rate is now w + t. c.Compute the marginal effect of the tax on the long-run cost function.To do so,compute the partial derivative of the cost function with respect to t.Does an increase in the tax increase the cost linearly?

The slope of the isoquant tells the firm how much

If a production function is represented as q = ,the long-run average cost curve will be horizontal as long as

When a firm produces one unit,the variable cost is $3.When the firm produces two units,the variable cost is $6.What is the marginal cost associated with two units of production?

Consider the following two situations. (i) You purchase a $10 movie ticket in advance over the Internet,but when arriving at the theater,you realize that you lost the ticket.The only way to see the movie is to purchase a new ticket. (ii) On the way to seeing a movie,you drop a $10 bill.You still can afford the movie,but you have lost the $10. How should you,rational person,respond to the two situations?

A firm observes that in order to minimize the average cost,it must produce 25,000 units of output.Suppose the government imposes a specific tax on the output of the firm.Will the output level required to minimize the average cost increase,decrease,stay the same or is it uncertain? Can you tell how much the minimum average cost will change by? Explain.