1. A firm pays its accountant an annual retainer of $10,000. Is this an economic cost? 2. Suppose that labor is the only variable input to the
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1. A firm pays its accountant an annual retainer of $10,000. Is this an economic cost? 

2. Suppose that labor is the only variable input to the production process. If the marginal cost of 

production is diminishing as more units of output are produced, what can you say about the 

marginal product of labor? 

3. Assume that the marginal cost of production is increasing. Can you determine whether the 

average variable cost is increasing or decreasing? Explain. 

4. The short-run cost function of a company is given by the equation TC = 200 + 55q, where TC 

is the total cost and q is the total quantity of output, both measured in thousands. 

a. What is the company's fixed cost? 

b. If the company produced 100,000 units of goods, what would be its average variable cost? 

c. What would be its marginal cost of production? 

d. What would be its average fixed cost? 

e. Suppose the company borrows money and expands its factory. Its fixed cost rises by $50,000, 

but its variable cost falls to $45,000 per 1000 units. The cost of interest (i) also enters into 

the equation. Each 1-point increase in the interest rate raises costs by $3000. Write the new 

cost equation. 

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