PROBLEM SET #7 - ECO105 Name 1. This chapter discussed many types of costs: opportunity cost, total cost, fixed cost, variable cost, average total cost, and marginal cost. Fill in the type of cost that best completes each sentence. Pick from: . opportunity cost variable cost total cost average total cost fixed cost marginal cost a. What you give up in taking some action is called the b. is falling when marginal cost is below it and rising when marginal costs is above it. C. A costs that does not depend on the quantity produced is a (n)_ d. The cost of producing an extra unit of output is the e. In the ice cream industry in the short run, includes the cost of cream and sugar but not the cost of the factory. f. Profits equal total revenue minus 2. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. Define Opportunity costb. Complete the table (above) in which you calculate the marginal cost per dozen pizzas using Does it look like this? If not, please go back and review. the information on total cost. Also, calculate the marginal cost per dozen pizzas using the information on variable cost. I completed the first two rows. What is the relationship between these sets of numbers? Explain? Costs 0 40 35 Marginal Cost . Average Total Cost 25 20- Average Variable Cost 10 5. Jane's Juice Bar has the following cost schedules: 2 3 4 5 Quantity of Juice Quantity Variable Total Average Average Marginal Cost Cost Variable Cost Total Cost Cost $0.00 $30.00 10.00 40.00 $10 $40 $10 2 25.00 55.00 $12.50 $27.50 $15 3 45.00 75.00 4 70.00 100.00 5 100.00 130.00 6 135.00 165.00 a. Calculate average variable costs, average total cost, and marginal cost for each quantity. Please complete the table above. I filled in the first two rows. b. Graph all three curves. What is the relationship between the marginal-cost curve and the average-total-cost curve? Between the marginal-cost curve and the average-variable-cost curve? Explain?b. What is your aunt's opportunity cost of running the hardware store for a year? If your aunt c. Fill in the column for average total cost. (Recall that ATC = TC/Q). What pattern do you see? thinks she can sell $510,000. Worth of merchandise in a year, should she open the store? Explain? d. Now fill in the column for marginal cost. (Recall that MC = ATC/AQ). What pattern do you see? 3. Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship Compare the column for marginal product with the column for marginal cost. Explain the between the number of workers and Nimbus' output during a given day. I have completed the relationship first two rows f. Compare the column for average total cost with the column for marginal cost. Explain the Workers Output Marginal Total Average Marginal relationship Product Cost Total Cost Cost 0 $200 1 20 20 $300 $15 $5 2 50 30 $400 $8 $3.33 4. Consider the following cost information for a pizzeria: 3 90 Quantity Total Variable Marginal Cost Marginal Cost 4 120 Cost Cost (using total cost) (using variable cost) 5 140 $300 6 150 1 350 50 $50 $50 155 2 390 90 $40 $40 3 420 120 a. Fill in the column of marginal products. What pattern do you see? How might you explain it? 4 450 150 Hint: incorporate Diminishing Marginal Product. 5 490 190 6 540 240 b. A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column for total cost a. What is the pizzeria's fixed costs