PS6 Answer Key

PS6 Answer Key - decreases when Q increases When Q is big the firm faces diseconomies of scale so average total cost increases when Q increases e

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Chapter 9,10 Answer Key 1. a. Furniture, equipment, rent, coloring and styling products = $56,000 b. Lost income and lost interest = $26,360 c. Accounting profit = $14,000 d. Economic profit = -$12,360 e. Economic profit is negative, so Sally should not open the salon. 2. a. It is making a long-run decision because it is choosing among a variety of factory sizes. All costs are variable. b. It will build a factory consistent with SRATC 2 . c. It faces economies of scale. We know this because long-run average total costs are declining. d. When Q is small, the firm faces economies of scale, so average total cost
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Unformatted text preview: decreases when Q increases. When Q is big, the firm faces diseconomies of scale, so average total cost increases when Q increases. e. Because of the law of diminishing marginal productivity. 3. 1 2 3 4 5 6 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 Quantity of output Cost 1 2 3 4 5 6 $0 $4 $8 $12 $16 $20 $24 $28 TC VC MC AFC AVC ATC FC a. $63 b. $12.67 c. $2.50 d. $8 e. $10 f. $10 4. a. 5*15+7.5*10=150. b. Q=500, 15Qm+10Ql=150; Q=100, 15Qm+10Ql=300 c. MPl/MPm=Pl/Pm=10/15=2/3....
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This note was uploaded on 11/04/2009 for the course ECON 201 taught by Professor Williams during the Fall '08 term at UVA.

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