Question
1. What are the factor payments for land, labor, and capital? 2. What is the difference between fixed costs and variable costs? 3. Are fixed
1. What are the factor payments for land, labor, and capital?
2. What is the difference between fixed costs and variable costs?
3. Are fixed costs also sunk costs? Explain.
4. The WipeOut Ski Company manufactures skis for beginners. Assume both variable and fixed costs have increased by 10% from what is listed in our textbook. Fill in Table 7.7 for total cost, average variable cost, average total cost, and marginal cost based on the 10% increase.
Quantity | Variable Cost | Fixed Cost | Total Cost | Average Total Cost | Average Variable Cost | Marginal Cost |
0 | 0 | $33 | ||||
1 | $11.00 | $33 | ||||
2 | $27.50 | $33 | ||||
3 | $49.50 | $33 | ||||
4 | $77.00 | $33 | ||||
5 | $110.00 | $33 | ||||
6 | $148.50 | $33 |
5. What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.
6. Should a firm shut down immediately if it is making losses?
7. A computer company produces affordable, easy-to-use home computer systems and has fixed costs of $250. The marginal cost of producing computers is $700 for the first computer, $250 for the second, $300 for the third, $350 for the fourth, $400 for the fifth, $450 for the sixth, and $500 for the seventh.
8. Create a table that shows the company's output, total cost, marginal cost, average cost, variable cost, and average variable cost.
9. At what price is the zero-profit point? At what price is the shutdown point?
10. If the company sells the computers for $500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.
11. If the firm sells the computers for $300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.
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