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microeconomics

Questions and Answers of Microeconomics

=+8. A competitive firm has the following short-run cost function: C(q) = q3 - 8q2 + 30q + 5.
=+a. Find variable cost, fixed cost, average cost, average variable cost, and average fixed cost.(Hint: Marginal cost is given by MC = 8q.)
=+7. Suppose the same firm’s cost function is C(q) = 4q2 + 16.
=+What quantity of output should the firm produce in the long run?
=+a marginal cost function MC = 4 + 4q. At the given market price of $20, the firm is producing 5 units of output. Is the firm maximizing its profit?
=+6. A firm produces a product in a competitive industry and has a total cost function C = 50 + 4q + 2q2 and
=+earning a positive, negative, or zero profit in the short run?
=+c. Suppose that the average variable cost of the firm is given by AVC(q) = 3 + q. Suppose that the firm’s fixed costs are known to be $3. Will the firm be
=+5. Suppose that a competitive firm’s marginal cost of producing output q is given by MC(q) = 3 + 2q. Assume that the market price of the firm’s product is $9.
=+4. Suppose you are the manager of a watchmaking firm operating in a competitive market. Your cost of production is given by C = 200 + 2q2, where q is the level of output and C is total cost. (The
=+What general conclusion can you reach about the effects of fixed costs on the firm’s output choice?
=+Assume that the price of the output remains at $60 per unit.
=+2. Using the data in the table, show what happens to the firm’s output choice and profit if the fixed cost of production increases from $100 to $150 and then to $200.
=+b. Show what happens to the firm’s output choice and profit if the price of the product falls from $60 to$50.R p MC MR R MR p q P P = 60 C P = 60 P = 60 P = 60 P = 50 P = 50 P = 50 0 60 100 1 60
=+a. Fill in the blanks in the table.
=+1. The data in the table below give information about the price (in dollars) for which a firm can sell a unit of output and the total cost of production.
=+12. Suppose a competitive industry faces an increase in demand (i.e., the demand curve shifts upward). What are the steps by which a competitive market ensures increased output?
=+In light of what you have learned in this chapter, why is each of these assumptions important?
=+11. What assumptions are necessary for a market to be perfectly competitive?
=+10. Can there be constant returns to scale in an industry with an upward-sloping supply curve? Explain.
=+How do you explain the decrease in the number of manufacturers? (Hint: What is the inherent cost structure of the automobile industry?)
=+the end of the century, there were only three large ones. Suppose that this situation is not the result of lax federal enforcement of antimonopoly laws.
=+d. Beyond what level of labor do diminishing returns set in?
=+c. What is Steve’s marginal product of labor function?
=+b. What is Steve’s average product of labor function?
=+a. What is Steve’s total product of labor function?
=+Suppose that the farm has 600 units of capital to use in the production of apples.
=+5. Steve’s farm produces apples using capital and labor according to the production function qapples = KL2 - L3.
=+ how many machines should it rent (at 40 machine-hours per week)? What are the marginal and average costs at this level of production?
=+c. Polly’s Parkas plans to produce 2000 parkas per week. At the factor prices given above, how many workers should the firm hire (at 40 hours per week)
=+ Does this technology exhibit decreasing, constant, or increasing returns to scale?
=+what are total costs as a function of q?
=+b. This process requires skilled workers, who earn $32 per hour. The rental rate on the machines used in the process is $64 per hour. At these factor prices,
=+to derive the total cost function: that is, costs as a function of q, r, w, and the constant $10 per unit materials cost.
=+a. By minimizing cost subject to the production function, derive the cost-minimizing demands for K and L as a function of output (q), wage rates (w), and rental rates on machines (r). Use these
=+where q is the number of parkas produced, K the number of computerized stitching-machine hours, and L the number of person-hours of labor. In addition to capital and labor, $10 worth of raw
=+4. Suppose the process of producing lightweight parkas by Polly’s Parkas is described by the function q = 10K.8(L - 40).2
=+ What combination of labor and capital minimizes the cost of producing any given output?
=+3. Suppose a production function is given by F(K, L) = KL2; the price of capital is $10 and the price of labor $15.
=+ what is the minimum cost of producing 1000 units of output?
=+2. The production function for a product is given by q = 100KL. If the price of capital is $120 per day and the price of labor $30 per day,
=+1. Of the following production functions, which exhibit increasing, constant, or decreasing returns to scale?a. F(K, L) = K2 Lb. F(K, L) = 10K + 5Lc. F(K, L) = (KL).5
=+b. If the firm is not cost-minimizing, how must it alter its choices of C and L in order to decrease cost?
=+a. Is this firm minimizing its cost of producing parking spaces? How do you know?
=+16. Suppose that a paving company produces paved parking spaces (q) using a fixed quantity of land (T)and variable quantities of cement (C) and labor (L).The firm is currently paving 1000 parking
=+The draftsman protested that such a drawing was impossible to construct. Whom would you support in this debate, and why? Include a diagram in your answer.
=+15. In a famous article (J. Viner, “Cost Curves and Supply Curves,” Zeitschrift fur Nationalokonomie 3 (Sept. 1931):23–46), Jacob Viner criticized his draftsman who could not draw a family of
=+14. A computer company produces hardware and software using the same plant and labor. The total cost of producing computer processing units H and software programs S is given by TC = aH + bS - cHS
=+c. During its existence, the firm has produced a total of 40,000 computers and is producing 10,000 computers this year. Next year it plans to increase production to 12,000 computers. Will its
=+a. Is there a learning-curve effect?
=+find the optimal level of capital and labor required to produce the 140 units of output.
=+d. If the marginal rate of technical substitution is K/L,
=+ Illustrate this graphically and find the firm’s new total cost.
=+b. The firm now wants to increase output to 140 units.If capital is fixed in the short run, how much labor will the firm require?
=+11. Suppose that a firm’s production function is q = 10L 12 K 12 .The cost of a unit of labor is $20 and the cost of a unit of capital is $80.
=+Graphically illustrate the isoquant and the two isocost lines for the current combination of labor and capital and for the optimal combination of labor and capital.
=+If the firm is currently using 3 hours of labor for each hour of machine time, is it minimizing its costs of production? If so, why? If not, how can it improve the situation?
=+be produced using 4 hours of labor or machinery in any combination.
=+Each 1-point increase in the interest rate raises costs by $3000. Write the new cost equation.
=+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
=+labor (K/L) ratio should the new plant accommodate if it wants to minimize the total cost of producing at any level of output q?
=+c. You are asked to make recommendations for the design of a new production facility. What capital/
=+ How do average costs vary with output?
=+What are average and marginal costs for producing q engines?
=+where q is the number of engines per week, K is the number of assembly machines, and L is the number of labor teams. Each assembly machine rents for r = $10,000 per week, and each team costs w =
=+8. You manage a plant that mass-produces engines by teams of workers using assembly machines. The technology is summarized by the production function q = 5KL
=+passenger for each flight. Suppose the airline hires you as a marketing consultant and wants to know which type of customer it should try to attract—the off-peak customer(the middle two flights)
=+7. The cost of flying a passenger plane from point A to point B is $50,000. The airline flies this route four times per day at 7 am, 10 am, 1 pm, and 4 pm. The first and last flights are filled to
=+6. Suppose the economy takes a downturn, and that labor costs fall by 50 percent and are expected to stay at that level for a long time. Show graphically how this change in the relative price of
=+When the article discusses selling cars “at a loss,” is it referring to accounting profit or economic profit? How will the two differ in this case? Explain briefly.units of output fixed Cost
=+partly because the auto makers’ current union contracts obligate them to pay many workers even if they’re not working.
=+5. A recent issue of Business Week reported the following: During the recent auto sales slump, GM, Ford, and Chrysler decided it was cheaper to sell cars to rental companies at a loss than to lay
=+b. Now suppose the firm is charged a tax that is proportional to the number of items it produces.
=+a. What is the firm's total cost function? Average cost?
=+2.a. Fill in the blanks in the table below.
=+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; other expenses, $25,000. Find the accounting cost and the
=+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
=+9. If the firm’s average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve?
=+ Can you determine whether the average variable cost is increasing or decreasing? Explain.
=+8. Assume that the marginal cost of production is greater than the average variable cost.
=+Can you determine whether the average variable cost is increasing or decreasing? Explain.
=+7. Assume that the marginal cost of production is increasing.Explain.
=+production process is substantially greater than the ratio of the rental rate on machinery to the wage rate for assembly-line labor.
=+5. Suppose a chair manufacturer finds that the marginal rate of technical substitution of capital for labor in her
=+4. 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,
=+3. Please explain whether the following statements are true or false.a. If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive.
=+Which would provide a greater benefit: increasing H by 1 or N by 1?
=+e. Now suppose that N = 4 and H = 2. You run a charity that can provide either food aid or health aid to this country.
=+c. Suppose that in a country suffering from famine, N is fixed at 2 and that c = 20. Plot the production function for life expectancy as a function of health expenditures, with L on the vertical
=+a. Beginning with a health input of $400 per year(H = 4) and a nutrition input of $4900 per year(N = 49), show that the marginal product of health
=+11. Suppose life expectancy in years (L) is a function of two inputs, health expenditures (H) and nutrition expenditures (N) in hundreds of dollars per year. The production function is L = c
=+8. Do the following functions exhibit increasing, constant, or decreasing returns to scale? What happens to the marginal product of each individual factor as that factor is increased and the other
=+of technical substitution of hours of labor for hours of machine capital is 1/4. What is the marginal product of capital?
=+7. The marginal product of labor in the production of computer chips is 50 chips per hour. The marginal rate
=+Can you tell whether the marginal rate of technical substitution is high or low, or is further information necessary? Discuss.
=+6. A firm has a production process in which the inputs to production are perfectly substitutable in the long run.
=+b. A firm finds that it can always trade two units of labor for one unit of capital and still keep output constant.
=+the production function for campaign votes. How might information about this function (such as the shape of the isoquants) help the campaign manager to plan strategy?
=+4. A political campaign manager must decide whether to emphasize television advertisements or letters to potential voters in a reelection campaign. Describe
=+9. Explain the term “marginal rate of technical substitution.” What does a MRTS = 4 mean?

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