Question

1.  A manufacturer produces 1,000 basketballs each day, which it sells to customers for $30 each. All costs associated with production and sales total $10,000; however, if the manufacturer were to produce one additional basketball per day, total costs would increase to $10,100. From these amounts, we can tell that

a)  the firm has negative profit.

b)  marginal cost equals $100.

c)  marginal cost equals $150.

d) marginal cost equals marginal revenue.

2.  . A firm can hire 10 workers at a wage of $10 but has to pay a wage of $12 to get 11 workers. What is the marginal cost of the 11th worker?

       a) $12

       b) $32

       c) $100

       d) $132

3.  A sofa manufacturer can produce 10 sofas for $2,500 and 12 sofas for $2,760. What is the difference between the average cost per sofa for 12 sofas and the marginal cost of the 12th sofa?

       a) $100

       b) $130

       c) $230

       d) $260

4. A few years ago, a Professor earning $40,000 decided to quit her job and open her own painting company. She took $50,000 out of her investment account earning 10% per year. She hired one employee. Suppose she generated $300,000 in sales. Total material and salary cost was $190,000. Calculate the accounting profit and economic profit for the professor of opening the business.

a)     110,000; 65,000

b)     85,000; 125,000

c)     110,000; 20,000

d)     125,000; 65,000

e)     None of the above.

5.  A spirits manufacturer is considering two potential production investments:

Option A costs an initial $2 billion and will involve variable costs (labor and material) of $5 per bottle of spirits. Option B costs an initial $4 billion and will involve variable costs (labor and material) of $3 per bottle of spirits. Assuming an annual capital charge equal to 10 percent of the initial costs, what is the average fixed cost at production level of 20,000,000 bottles per year for the Option B facility?

a)                  $3.

b)                 $20.

c)                  $23.

d)                 $10.

Answer 1

1) Total cost when 1000 basketballs are produced= $10000

Total cost when 1001 basketballs are Produced= $10100

Marginal Cost of producing 1001th basketball= Total Cost of Producing 1001 basketballs–Total Cost of Producing 1000 basketballs

Marginal Cost of Producing 1001th basketball= 10100–10000= $100.

We can tell that the Marginal cost of Producing 1001th basketball or the one additional basketball per day is $100.

So, Option c is outright incorrect.

Firm still has Positive profits since total revenue is Greater than total cost. So Option a is also incorrect

Moreover, the Marginal Revenue is $30 and Marginal Cost is $100. So Marginal Revenue is not equal to Marginal Cost. So, Option d is also incorrect

Therefore, Option b is correct i.e, Marginal Cost equals $100.