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Homework answers / question archive / DeVry University, Chicago ECON ECON312 chapter 9 1)Why are costs important in economics? Why don’t economists use the same cost data as accountants use?       Jane quit her job at AT&T where she earned $29,000 a year

DeVry University, Chicago ECON ECON312 chapter 9 1)Why are costs important in economics? Why don’t economists use the same cost data as accountants use?       Jane quit her job at AT&T where she earned $29,000 a year

Economics

DeVry University, Chicago

ECON ECON312

chapter 9

1)Why are costs important in economics? Why don’t economists use the same cost data as accountants use?

 

 

 

  1. Jane quit her job at AT&T where she earned $29,000 a year. She cashed in $40,000 in corporate bonds that earned 10% interest annually to buy a mini-bus. Jane has decided to buy the mini-bus and set up a commuter service between Lincoln and Omaha. There are 1000 people who will pay

$400 a year each for the commuter service; $280 from each person goes for gas, maintenance, insurance, depreciation, etc.

 

    1. Complete the following questions: (1) What are Jane’s total revenues? (2) What are Jane’s explicit costs? (3) What is her accounting profit?
    2. List two important implicit costs that Jane has not included.
    3. What is Jane’s pure economic profit (loss)?

 

  1. Why is the distinction between fixed and variable cost important?

 

 

  1. Indicate whether the inputs below are variable (V) or fixed (F) in the short run.
  2. What is the difference between the short run and the long run?

 

 

  1.  What is the relationship between total product, marginal product, and average product shown by the law of diminishing returns?

 

 

  1.  What is the law of diminishing returns? Give a descriptive example.

 

 

  1. What is the relationship between marginal cost and marginal product?

 

 

  1. Why does the short-run marginal-cost curve eventually increase for the typical firm?

 

 

  1. Answer the questions below on the basis of the

 

 
 

 

 

diagram.

 

    1. How can you tell if these cost curves are for the short run or the long run?

 

    1. What does the graph indicate about:
      1. AVC at 6,000 units of output?
      2. ATC at 6,000 units of output?
      3. AFC at 6,000 units of output?
      4. TVC at 6,000 units of output?
      5. TFC at all levels of output?
      6. TC at 10,000 units of output?
      7. When diminishing returns set in?

 

  1.  What effect would each of the following have on the short-run average and marginal costs of an auto dealership: (a) auto mechanics receive a 10% wage increase; (b) property taxes decrease;
  1. auto dealers institute a one-time only promotional campaign?

 

 

  1.  What factors explain economies of scale?

 

 

  1. Consider the diagram below. Curves 1–8 are the short-run curves that occur with different plant sizes. Answer the next two questions.

 

    1. On the graph show the range of outputs for: (1) economies of scale; (2) diseconomies of scale: Indicate (3) minimum efficient scale.
    2. In the long run, what plant size should the firm build if it wants to produce: (1) 6000 units; (2) 14,000 units?

 

  1.  (Last Word) What is the economic meaning of the saying “Don’t cry over spilt milk” and its implications for economic decision-making?

 

 

 

 

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