# Chap13 - 13 1. 2. a. b. THECOSTSOFPRODUCTION...

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Problems and Applications 1. a. opportunity cost; b. average total cost; c. fixed cost; d. variable cost; e. total cost;  f. marginal cost. 2. a. The opportunity cost of something is what must be given up to acquire it. b. The opportunity cost of running the hardware store is \$550,000, consisting of \$500,000 to  rent the store and buy the stock and a \$50,000 opportunity cost, because your aunt  would quit her job as an accountant to run the store. Because the total opportunity cost of  \$550,000 exceeds revenue of \$510,000, your aunt should not open the store, as her  profit would be negative. 4. a. The following table shows the marginal product of each hour spent fishing: Hours Fish Fixed Cost Variable Cost Total Cost Marginal Product 0 0 \$10 \$0 \$10 --- 1 10 10 5 15 10 2 18 10 10 20 8 3 24 10 15 25 6 4 28 10 20 30 4 5 30 10 25 25 2 b. Figure 7 graphs the fisherman's production function. The production function becomes  flatter as the number of hours spent fishing increases, illustrating diminishing marginal  product. 243 THE COSTS OF PRODUCTION 13

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244   Chapter 13/The Costs of Production Figure 7 c. The table shows the fixed cost, variable cost, and total cost of fishing. Figure 8 shows the  fisherman's total-cost curve. It has an upward slope because catching additional fish
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## This note was uploaded on 10/13/2010 for the course ECON 200 taught by Professor Levendis during the Fall '07 term at Loyola New Orleans.

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Chap13 - 13 1. 2. a. b. THECOSTSOFPRODUCTION...

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