ONLINECO 

Chapter 13. The Costs of Production. Gregory Mankiw. Principles of Economics. 1-5 exercises. 7th edition

 

1. This chapter discusses many types of costs: opportunity cost, total cost, fixed cost, variable cost, average total cost, and marginal cost. Fill in the type of costthat best completes each sentence: a. What you give up for taking some action is called the ______. b. _____ is falling when marginal cost is below it and rising when marginal cost is above it. c. A cost that does not depend on the quantity produced is a(n) ______. d. In the ice-cream industry in the short run, ______ includes the cost of cream and sugar but not the cost of the factory e. Profits equal total revenue minus ______. f. The cost of producing an extra unit of output is the ______.

 

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. A. Define opportunity cost. b. What is your aunt’s opportunity cost of running a hardware store for a year? If your aunt thinks she can sell $510,000 worth of merchandise in a year, should she open the store? Explain..

 

3. A commercial fisherman notices the followingrelationship between hours spent fishing and the quantity of fish caught: a. What is the marginal product of each hour spent fishing? b. Use these data to graph the fisherman’s production function. Explain its shape c. The fisherman has a fixed cost of $10 (his pole). The opportunity cost of his time is $5 per hour. Graph the fisherman’s total-cost curve. Explain its shape.

 

4. Nimbus, Inc., makes brooms and then sells them door to-door. Here is the relationship between the number of workers and Nimbus’s output in a given day: a. Fill in the column of marginal products. What pattern do you see? How might you explain it? 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. c. Fill in the column for average total cost. (Recall that ATC=TC/Q.) What pattern do you see? d. Now fill in the column for marginal cost. (Recall that MC=ΔTC/ΔQ.) What pattern do you see? e. Compare the column for marginal product and the column for marginal cost. Explain the relationship. f. Compare the column for average total cost and the column for marginal cost. Explain the relationship.

 

5. You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule: A. Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. Should you accept the offer? Why or why not?