hubbard_econ01_eoca_10-18

# hubbard_econ01_eoca_10-18 - Chapter 10 Answers to End of...

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Chapter 10 Answers to End of Chapter Problems and Applications 2. Quantity of Workers Total Output Marginal Product of Labor Average Product of Labor 0 0 1 400 400 400 2 900 500 450 3 1500 600 500 4 1900 400 475 5 2200 300 440 6 2400 100 400 7 2300 –100 329 4. a. Variable cost = total cost – fixed cost = \$30,000 - \$10,000 = \$20,000. b. AVC = VC/Q = \$20,000/10,000 = \$2; AFC = FC/Q = \$10,000/10,000 = \$1 c. The gap must get smaller as output rises because ATC = AVC + AFC and AFC falls as output rises. 6. As long as Sally’s GPA for a semester is below her cumulative GPA, her cumulative GPA will fall. 8. Jill’s reasoning is faulty. If she could rent out her current building for \$4,000 per month, then she incurs an opportunity cost of that amount by using the building herself. 10. Although Franklin had no explicit expense when he advertised in his own paper, he did incur a cost. The space for his own advertisements could have been used for paid advertisements by other firms.

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12. Fixed costs are like a lump-sum tax because both are fixed amounts that do not change as output changes. Because AFC = FC/Q, a tax becomes smaller per unit of output as output rises. 14. a. Jill’s costs will be lower with a smaller store. b. Her costs will be lower with a larger store. c. Because of the effects of economies of scale. 16. AFC should be downward sloping, not U-shaped. ATC should be above AVC. 18. Ford would have ended up as the only automobile producer. Other producers would have had higher costs and, therefore, would not have been able to match his price cuts. 20. There must be economies of scale in book publishing. 22. Morita’s short-run cost curve is described in the chapter opener. Its lowest point is at outputs between 10,000 and 30,000. If he wanted to produce more than 75,000, he would have built an additional factory, or, if there were economies of scale in manufacturing transistor radios, he would have built a larger factory. 24. eToys built the large distribution center represented by ATC 2 because they expected their sales to be Q 2 . In that case, their average costs would have been AC 1 . In fact, their sales were only Q 1 , which meant their costs were AC 3 . If they had known how low their actual sales would have been, they would have been better off building the smaller distribution center represented by ATC 1 . This would have lowered their average costs to AC 2 . This is what the author meant when he wrote that eToys “needed to generate much higher sales to justify its costs.”
26. DuPont had expected to be on ATC 1 , in which case as production of paint increased from Q 1 to Q 2 , average cost would have decreased from AC 1 to AC 2 . In fact, they were on ATC 2 , so average cost actually increased from AC 3 to AC 4 , as production expanded. 28. The investors were expecting the long-run average cost curve to fall as output rose from the initial level, Q 1 , to the post-merger level Q 2 , as shown by LRAC 2 . Instead, long-run average costs didn’t fall. LRAC 1 reflects the actual long-run average cost curve because average costs are no lower at Q 1 than at Q 2 .

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Answers to Appendix Problems and Applications 2. a. If total cost is \$2000 and wage and rent price = \$100, the isocost curve’s endpoints are at 20
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