Question

1)Alexandria has her own lawn service. It takes her two hours to cut a lawn and she cuts 1,000 lawns per year. She uses solar-powered equipment (truck and mower) that will last forever – and can be sold at any time for $30,000. Alexandria could earn $12 per hour as a swim instructor. The interest rate is 10 percent.

Given her current level of output, compute her marginal cost and average cost of cutting lawns.

Suppose she decrease the number of lawns cut to 500 lawns per year. Now compute her marginal cost and average cost of cutting lawns.

2)Suppose the total cost of producing 10,000 tennis balls is $40,000, and the fixed cost is $10,000.

AWhen output is 10,000 what are the average variable cost and average total cost?

BIs the dollar difference between the average variable cost and average total cost greater when output is 10,000 or 30,000? Explain your reasoning.

3)Do you agree or disagree with the following statement: “If marginal cost is rising with increasing output, average cost must also be rising.”   Explain you reasoning.

4)

Belinda is the owner of a department store. Last year, her total revenue was $525,000 and her total labor costs were $200,000. Her overhead expenses, including insurance and legal fees, were $175,000. The rent on the building was $45,000. Belinda could earn $105,000 per year working at a nearby department store. If her total revenue increases to $600,000 this year and all of her other expenses are held constant, we know that her economic profit is now

$75,000.

$600,000.

$0.00.

$105,000.

$200,000.

5)If the marginal product of labor for a firm decreases as more workers are hired, we know that

Aall workers are paid the same wage.

Bthe marginal cost of producing output is decreasing.

Cthe gains from specialization are exhausted.

Dthe marginal cost of producing output is constant.

Ethere are still gains from specialization left to be exploited. 6)

Kareem owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Kareem sold 1,200 bikes.

Kareem’s average fixed cost was ________ per bike.Question 8 options:

A$600

B$625

C$1,000

D$2,000

E$375

When firms grow larger, they sometimes acquire more market power, meaning that they have greater ability to negotiate lower prices with their suppliers. This ability to negotiate lower prices with their suppliers leads to

	Adiseconomies of scale.
	Bdiminishing marginal returns.
	Ceconomies of scale.
	Dconstant returns to scale.
	Eincreasing marginal returns. (plases type questions. Hand write is not every clearly）

Answer 1

4. Economic Profit = Total revenue - Total cost including implicit and explicit cost

Economic profit = 600,000 - (200,000 + 175,000 + 45,000 + 105,000)

= 600,000 - 525,000 = $ 75,000

6. AFC = TFC/Q = 450,000/1200 = $ 375