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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. 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.
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- Complete the following questions: (1) What are Jane’s total revenues? (2) What are Jane’s explicit costs? (3) What is her accounting profit?
- List two important implicit costs that Jane has not included.
- What is Jane’s pure economic profit (loss)?
- Why is the distinction between fixed and variable cost important?
- Indicate whether the inputs below are variable (V) or fixed (F) in the short run.
- What is the difference between the short run and the long run?
- What is the relationship between total product, marginal product, and average product shown by the law of diminishing returns?
- What is the law of diminishing returns? Give a descriptive example.
- What is the relationship between marginal cost and marginal product?
- Why does the short-run marginal-cost curve eventually increase for the typical firm?
- Answer the questions below on the basis of the
|
diagram.
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- How can you tell if these cost curves are for the short run or the long run?
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- What does the graph indicate about:
- AVC at 6,000 units of output?
- ATC at 6,000 units of output?
- AFC at 6,000 units of output?
- TVC at 6,000 units of output?
- TFC at all levels of output?
- TC at 10,000 units of output?
- When diminishing returns set in?
- What does the graph indicate about:
- 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;
- auto dealers institute a one-time only promotional campaign?
- What factors explain economies of scale?
- Consider the diagram below. Curves 1–8 are the short-run curves that occur with different plant sizes. Answer the next two questions.
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- On the graph show the range of outputs for: (1) economies of scale; (2) diseconomies of scale: Indicate (3) minimum efficient scale.
- In the long run, what plant size should the firm build if it wants to produce: (1) 6000 units; (2) 14,000 units?
- (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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