chapter:
12
>>
Behind the Supply Curve:
Inputs and Costs
Krugman/Wells
CHECK YOUR UNDERSTANDING
©2009  Worth Publishers
Check Your Understanding 12-1
Question 1
Bernie’s ice-making
company produces ice
cubes using a 10-ton
machine and electricity.
The quantity of output,
measured in terms of
pounds of ice, is given in
this table:
1ai) Bernie’s ice-making company produces ice cubes
using a 10-ton machine and electricity. The 10-ton
machine is a _____ input.
1.
2.
fixed
variable
1aii) Bernie’s ice-making company produces ice
cubes using a 10-ton machine and electricity. The
electricity is a _____ input.
1.
2.
fixed
variable
1bi) Calculate the marginal product of the third unit
of the variable input.
1.
2.
3.
4.
1000
900
800
600
1bii) The calculation of all of the marginal products reveals that
there are _______ returns to the input.
1.
2.
increasing
diminishing
1ci) Bernie’s ice-making company produces ice cubes using
a 10-ton machine and electricity. Suppose a 50% increase
in the size of the fixed input increases output by 100% for
any given amount of the variable input. What is the fixed
input now?
1.
2.
3.
4.
the 10 ton machine
the 15 ton machine
the 20 ton machine
6 kilowatts of electricity
1cii) Suppose a 50% increase in the size of the fixed input
increases output by 100% for any given amount of the
variable input. Given the original production function, the
quantity of ice that can be produced using 2 units of the
variable input is _____.
1.
2.
3.
4.
900
1800
2700
3600
Check Your Understanding 12-2
Question 1*
Suppose that the fixed cost of making 10 game
day t-shirts is $25, and the variable cost is $50.
NEW
CHECK YOUR UNDERSTANDING
1*) Suppose that the fixed cost of making 10 game
day t-shirts is $25, and the variable cost is $50.
Calculate average variable cost.
1.
2.
3.
4.
NEW
$75
$25
$7.50
$5.00
CHECK YOUR UNDERSTANDING
1*) Suppose that the fixed cost of making 10 game
day t-shirts is $25, and the variable cost is $50.
Calculate average total cost.
1.
2.
3.
4.
NEW
$75
$25
$7.50
$5.00
CHECK YOUR UNDERSTANDING
1*) Suppose that the fixed cost of making 10 game
day t-shirts is $25, and the variable cost is $50.
Calculate average fixed cost.
1.
2.
3.
4.
NEW
$25
$2.50
$7.50
$5.00
CHECK YOUR UNDERSTANDING
Check Your Understanding 12-2
Question 1
Alicia’s Apple Pies is a roadside business. Alicia must
pay $9 in rent each day. In addition, it costs her $1.00
to produce the first pie of the day, and each
subsequent pie costs 50% more to produce than the
one before. For example, the second pie costs $1.00
× 1.5 = $1.50 to produce, and so on.
1ai) Alicia must pay $9 in rent each day. In addition, it costs her $1.00 to
produce the first pie of the day, and each subsequent pie costs 50%
more to produce than the one before. For example, the second pie costs
$1.00 × 1.5 = $1.50 to produce, and so on.
Calculate Alicia’s marginal cost of the 3rd pie.
1.
2.
3.
4.
$1.00
$1.25
$2.25
$3.00
1aii) Calculate Alicia’s variable cost of producing 3 pies
(Hint: The variable cost of two pies is just the marginal cost
of the first, plus the marginal cost of the second pie, and so
on.)
1.
2.
3.
4.
$1.58
$3.25
$4.10
$4.75
1aiii) Alicia must pay $9 in rent each day. In addition, it costs
her $1.00 to produce the first pie of the day, and each
subsequent pie costs 50% more to produce than the one
before. Calculate Alicia’s average fixed cost of producing 3
pies.
1.
2.
3.
4.
$1.00
$1.25
$2.25
$3.00
1aiv) Calculate Alicia’s average variable cost of producing 3
pies.
1.
2.
3.
4.
$1.58
$3.25
$4.10
$4.75
1av) Calculate Alicia’s average total cost of producing 3 pies.
1.
2.
3.
4.
$1.58
$3.25
$4.10
$4.58
1bi) The spreading effect dominates the range of output from
_____ .
1.
2.
3.
4.
0 to 3
1 to 4
2 to 5
5 to 6
4
4.28
1bii) The diminishing returns effect dominates the range of
output from _____ .
1.
2.
3.
4.
0 to 3
1 to 4
2 to 5
5 to 6
4.28
1ci) What is Alicia’s minimum cost output?
1.
2.
3.
4.
1 pie
2 pies
4 pies
5 pies
4
4.28
1cii) Making one more pie raises average total cost when
output is greater than 4 pies because the marginal cost of the
5th pie is less than the average total cost of the first four pies.
1.
2.
True
False
4
4.28
Check Your Understanding 12-3
Question 1
The table below shows three combinations of fixed and
average variables cost. Use it to answer the following
questions.
1ai) For Choice 1 what is the average total cost of producing 12,000
units?
1.
2.
3.
$1.80
$1.67
$1.00
1aii) Which choice leads to the lowest average total cost of producing
12,000 units?
1.
2.
3.
Choice 1
Choice 2
Choice 3
1aiii) Which choice leads to the lowest average total cost of producing
22,000 units?
1.
2.
3.
Choice 1
Choice 2
Choice 3
1aiv) Which choice leads to the lowest average total cost of producing
30,000 units?
1.
2.
3.
Choice 1
Choice 2
Choice 3
1bi) Suppose that a firm has the choices 1, 2, and 3. Historically they
have produced 12,000 units. Suddenly, demand increases sharply leading
to a permanent change in production for the firm from 12,000 units to
22,000 units. In the short run we expect that the firm will produce using
______.
1.
2.
3.
Choice 1
Choice 2
Choice 3
1bii) Suppose that a firm has the choices 1, 2, and 3. Historically they
have produced 12,000 units. Suddenly, demand increases sharply
leading to a permanent change in production for the firm from 12,000
units to 22,000 units. The average cost of production in the short run is
_______.
1.
2.
3.
4.
$1.67
$1.75
$1.36
$1.30
1biii) Suppose that a firm has the choices 1, 2, and 3. Historically they
have produced 12,000 units. Suddenly, demand increases sharply
leading to a permanent change in production for the firm from 12,000
units to 22,000 units. In the long run we expect that the firm will
produce using ______.
1.
2.
3.
Choice 1
Choice 2
Choice 3
1biv) Suppose that a firm has the choices 1, 2, and 3. Historically they
have produced 12,000 units. Suddenly, demand increases sharply
leading to a permanent change in production for the firm from 12,000
units to 22,000 units. The average cost of production in the long run is
_______.
1.
2.
3.
4.
$1.67
$1.75
$1.36
$1.30
Check Your Understanding 12-3
Question 2
For the following cases, choose the kind of
scale effects you would expect.
2a) A telemarketing firm in which employees make
sales calls using computers and telephones.
1.
2.
3.
diseconomies of scale
economies of scale
constant returns to scale
2b) An interior design firm in which design projects
are based on the expertise of the firm’s owner.
1.
2.
3.
diseconomies of scale
economies of scale
constant returns to scale
2c) A diamond-mining company
1.
2.
3.
diseconomies of scale
economies of scale
constant returns to scale