4. Mr. Star Bucks is considering the costs of opening a coffee shop. There is a lot for Star to consider. Star will use his barn as the coffee shop and office. To do so he will no longer rent to the local college student who has been paying him $100 a week to live there Star will need to buy a set of equipment: espresso machines, coffee pots, coffee mugs, etc. He found a set of used equipment to buy. The entire set will cost him $10,000. He knows that this equipment will not depreciate (that is it will not suffer any wear and tear). He will borrow money from the bank to buy this set of equipment. The bank will charge him 2% interest per week. If he opens the coffee shop, Star will spend time working there. The time Star works in his coffee shop would have been used as billable hours to Folgers, where he can always freelance as a coffee tasting consultant. Folgers pays him $40/hour for consulting Star will also need to hire workers by the hour. The market wage rate for hired labor is $10/hour. Star buys coffee beans and water in competitive markets. Water costs $1/gallon and coffee beans cost $5/pound. That is all Star uses to make his coffee All the additional information you need to know about Star's cost minimizing production function is in the table on the next page. " " * * - Does Star's technology for making coffee exhibit the law of diminishing marginal returns? Which, if any, input(s) display diminishing marginal returns? Briefly defend your position. Fill in the cost table on the next page with the correct cost information for Star. (For the marginal cost column, use the big "delta-method".) Draw a rough sketch of the idealized textbook perfectly shaped version of this set of cost curves (average variable cost, average total cost, and marginal cost). Please use the provided axis on the answer page. Now examine your cost table for Star's cost structure. Sketch out Star's version of the set of cost curves (average variable cost, average total cost, and marginal cost). Compare and contrast Star's graph to the textbook perfectly shaped version in (c). Please use the provided axis on the answer page. Suppose that during the week Star sells 500 cups of coffee and charges $5.00 per cup. Given this information, what are Star's accounting profits and what are Star's economic profits? a. b. c. d. e. 4. Mr. Star Bucks is considering the costs of opening a coffee shop. There is a lot for Star to consider. Star will use his barn as the coffee shop and office. To do so he will no longer rent to the local college student who has been paying him $100 a week to live there Star will need to buy a set of equipment: espresso machines, coffee pots, coffee mugs, etc. He found a set of used equipment to buy. The entire set will cost him $10,000. He knows that this equipment will not depreciate (that is it will not suffer any wear and tear). He will borrow money from the bank to buy this set of equipment. The bank will charge him 2% interest per week. If he opens the coffee shop, Star will spend time working there. The time Star works in his coffee shop would have been used as billable hours to Folgers, where he can always freelance as a coffee tasting consultant. Folgers pays him $40/hour for consulting Star will also need to hire workers by the hour. The market wage rate for hired labor is $10/hour. Star buys coffee beans and water in competitive markets. Water costs $1/gallon and coffee beans cost $5/pound. That is all Star uses to make his coffee All the additional information you need to know about Star's cost minimizing production function is in the table on the next page. " " * * - Does Star's technology for making coffee exhibit the law of diminishing marginal returns? Which, if any, input(s) display diminishing marginal returns? Briefly defend your position. Fill in the cost table on the next page with the correct cost information for Star. (For the marginal cost column, use the big "delta-method".) Draw a rough sketch of the idealized textbook perfectly shaped version of this set of cost curves (average variable cost, average total cost, and marginal cost). Please use the provided axis on the answer page. Now examine your cost table for Star's cost structure. Sketch out Star's version of the set of cost curves (average variable cost, average total cost, and marginal cost). Compare and contrast Star's graph to the textbook perfectly shaped version in (c). Please use the provided axis on the answer page. Suppose that during the week Star sells 500 cups of coffee and charges $5.00 per cup. Given this information, what are Star's accounting profits and what are Star's economic profits? a. b. c. d. e
