1. The average cost of producing an iPhone is about $ _____.

2. The cost of producing the first fake killer whale is about three times the cost of producing the second because the firm uses _____ inputs.

3. The average cost of electricity _____ (increases/decreases) as the size of the wind turbine increases.

4. For information goods such as a music video distributed online, the cost of producing the first copy is very _____, but the marginal cost is _____.

5. The capital cost of a solar cell in 2007 was about one _____ (half/fourth/tenth) the capital cost in 1980.

6. Changing the Cost of iPhones. Suppose a new set of integrated circuits for an iPhone has two-thirds the cost of the original set. The new set doubles the assembly cost. How does the cost of an iPhone with the new set compare to the cost of the iPhone with the original set?

7. A Better Whale Mold? Suppose a new mold is developed for producing fake killer whales. The new mold has twice the cost of the original mold, but cuts the marginal cost of whales to $1,000.

a. How does the cost of the first whale produced with the new mold compare to the cost with the original mold?

b. At what quantity of whales will production with the new mold be less costly than production with the original mold?

8. The Average Cost of a Super-Sized Turbine. Suppose a new super-sized wind turbine is developed. Fill in the blanks in the following table.

Super-Sized Turbine

(1,000 kilowatt)

Purchase price of turbine ...........$500,000

Installation cost ...............$100,000

Operating and maintenance cost ..........$200,000

Total cost

Electricity generated (kilowatt-hours) .........40 million

Average cost (per kilowatt-hour)

9. The Average Cost of a Music Video. In Figure suppose a strike by wardrobe and makeup artists increases the cost of wardrobe and makeup by $17,000. Draw the average-cost curve for producing the video and distributing it online, with quantities up to 50,000.

.:.

10. The Average Cost of Drama DVDs. You have been hired to produce a DVD of a play put on by a high school drama club. It will take you about 50 hours to make the master, which will be stored on a hard drive on your computer. The opportunity cost of your time is $20 per hour. The marginal cost of burning DVDs is constant at $2. Draw the average-cost curve for producing the DVD, with quantities up to 100 DVDs.