Ch07 Textbook Answers

Ch07 Textbook Answers - Chapter7...

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Chapter 7 Exercises 1, 2, 4, 5, 9, 10, 11, 12 and 14 1.  Joe quits his computer-programming  job, where he was earning a salary of $50,000 per  year  to start   his own  computer software   business   in a building that he owns and was  previously renting out for $24,000 per year.   In his first year of business he has the  following expenses:  salary paid to himself $40,000, rent, $0, and  other expenses $25,000.  Find the accounting cost and the economic cost associated with Joe’s computer software   business . The   accounting   cost   represents   the   actual   expenses,   which   are   $40,000+$0   +   $ 25,000=$65,000.   The economic cost  includes   accounting cost, but also takes into   account  opportunity cost.   Therefore, economic  will include, in addition to accounting   cost,   an extra $24 ,000 because Joe  gave up $24,000 by not renting the building , and  an extra $10,000 because he paid himself a salary  $10,000 below market  ($50,000- $40,000).  Economic cost is then $99,000.   2.  a.  Fill in the blanks in the following table. Units of Output Fixed Cost Variable Cost Total Cost Marginal Cost Average Fixed Cost Average Variable Cost Average Total Cost 0 100 0 100 -- -- 0 -- 1 100 25 125 25 100 25 125 2 100 45 145 20 50 22.5 72.5 3 100 57 157 12 33.3 19 52.3 4 100 77 177 20 25 19.25 44.25 5 100 102 202 25 20 20.4 40.4 6 100 136 236 34 16.67 22.67 39.3 7 100 170 270 34 14.3 24.3 38.6 8 100 226 326 56 12.5 28.25 40.75 9 100 298 398 72 11.1 33.1 44.2 10 100 390 490 92 10 39 49 b. Draw a graph that shows marginal cost, average variable cost, and average total  cost, with cost on the vertical axis and quantity on the horizontal axis. Average total cost is u-shaped and reaches a minimum at an output of 7, based on  the above table.  Average variable cost is u-shaped also and reaches a minimum at an  output of 3.  Notice from the table that average variable cost is always below average  total cost.  The difference between the two costs is the average fixed cost.  Marginal  cost is first diminishing, to a quantity of 3 based on the table, and then increases as q  increases.   Marginal cost should intersect average variable cost and average total 
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cost at their respective minimum points, though this is not accurately reflected in the  numbers in the table.  If the specific functions had been given in the problem instead  of just a series of numbers, then it would be possible to find the exact point of  intersection between marginal and average total cost and marginal and average  variable cost.   The curves are likely to intersect at a quantity that is not a whole  number, and hence are not listed in the above table. ge, 
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This note was uploaded on 09/25/2010 for the course ECON Econ 2296 taught by Professor W.graygiovannetti during the Fall '10 term at Langara.

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Ch07 Textbook Answers - Chapter7...

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