Chapter 9, Businesses and the Costs of Production Video Solutions, Economics: Principles, Problems, and Policies

Problem 1

Linda sells 100 bottles of homemade ketchup for $\$ 10$ each. The cost of the ingredients, the bottles, and the labels was $\$ 700 .$ In addition, it took her 20 hours to make the ketchup and to do so she took time off from a job that paid her $\$ 20$ per hour. Linda's accounting profit is ______ while her economic profit is _____.
a. $\$ 700 ; \$ 400$
b. $\$ 300 ; \$ 100$
c. $\$ 300 ;$ negative $\$ 100$
d. $\$ 1,000 ;$ negative $\$ 1,100$

Oluwadamilola Ameobi

Numerade Educator

01:22

Problem 2

Which of the following are short-run and which are long-run adjustments?
a. Wendy's builds a new restaurant.
b. Harley-Davidson Corporation hires 200 more production workers.
c. A farmer increases the amount of fertilizer used on his corn crop.
d. An Alcoa aluminum plant adds a third shift of workers.

Oluwadamilola Ameobi

Numerade Educator

33:06

Problem 3

A firm has fixed costs of $\$ 60$ and variable costs as indicated in the table at the top of the next page. Complete the table and check your calculations by referring to problem 4 at the end of Chapter 10.
a. Graph total fixed cost, total variable cost, and total cost. Explain how the law of diminishing returns influences the shapes of the variable-cost and total-cost curves.
b. Graph AFC, AVC, ATC, and MC. Explain the derivation and shape of each of these four curves and their relationships to one another. Specifically, explain in nontechnical terms why the MC curve intersects both the AVC and the ATC curves at their minimum points.
c. Explain how the location of each curve graphed in question 3b would be altered if (1) total fixed cost had been $\$ 100$ rather than $\$ 60$ and (2) total variable cost had been $\$ 10$ less at each level of output.

Oluwadamilola Ameobi

Numerade Educator

07:35

Problem 4

Indicate how each of the following would shift the (1) marginalcost curve, (2) average-variable-cost curve, (3) average-fixed-cost curve, and (4) average-total-cost curve of a manufacturing firm. In each case specify the direction of the shift.
a. A reduction in business property taxes.
b. An increase in the nominal wages of production workers.
c. A decrease in the price of electricity.
d. An increase in insurance rates on plant and equipment.
e. An increase in transportation costs.

Oluwadamilola Ameobi

Numerade Educator

02:20

Problem 5

True or false. The U shape of the long-run ATC curve is the result of diminishing returns.

Natalie Britton

Numerade Educator

15:11

Problem 6

Suppose a firm has only three possible plant-size options, represented by the ATC curves shown in the figure to the right. What plant size will the firm choose in producing
(a) $50,(b)$ 130, (c) $160,$ and (d) 250 units of output? Draw the firm's long-run average-cost curve on the diagram and describe this curve.

Paul A.

California State Polytechnic University, Pomona