Homework Problems Chapter 11

Homework Problems Chapter 11

1. What happens to the cost of growing strawberries on your own land if a housing developer offers you three times what you thought your land was worth?

2. As a farmer, you work for yourself using your own tractor, equipment, and farm structures, and you cultivate your own land. Why might it be difficult to calculate your profits from farming?

3. The salmon fishery in Alaska’s Bristol Bay has historically been one of the world’s richest. Over the past few years, poor returns of salmon to the Bay and competition from farm-raised salmon have reduced the economic returns to the fishermen. One response to lower revenues has been for fishermen to use family members instead of hiring crew “in order to reduce their costs.” Evaluate this business strategy. Will employing relatives really keep profits from falling? Under what conditions is this a good strategy?

4.

Willie’s Water Park Short-Run Production Function

1. Fill in the total product column.
2. Willie’s Water Park experiences diminishing marginal product beginning with which worker?
3. Willie’s Water Park experiences diminishing total product beginning with which worker?
4. Harry’s Hat Company makes hats using the technology described below:

Fill in the Marginal Product columns of these tables.

1. At what point does diminishing marginal product set in with three machines?
2. With four?
3. Why is the point of diminishing marginal product different in each case?

6. Fill in the rest of the production function for Candy’s Candies from the information provided.

1. Candy’s Candies begins to experience diminishing marginal product with which worker?
2. Does Candy’s Candies ever experience negative marginal product? If so, with the addition of which worker?

7. Say that your firm’s total product curve includes the following data: one worker can produce 8 units of output; two workers, 20 units; three workers, 34 units; four workers, 50 units; five workers, 60 units; six workers, 70 units; seven workers, 76 units; eight workers, 78 units; and nine workers, 77 units.
8. What is the marginal product of the seventh worker?
9. When does the law of diminishing product set in?
10. Under these conditions, would you ever choose to employ nine workers?

8. Why does the law of diminishing marginal product imply the law of increasing costs?

9. Complete the following table describing the short-run daily costs of the Attractive Magnet Co. for 2018.

10. A one-day ticket to visit the Screaming Coasters theme park costs $36, but you can also get a two-consecutive-day ticket for $40. What is the average cost per day for the two-day ticket? What is the marginal cost of the second consecutive day?

11. As a movie exhibitor, you can choose between paying a flat fee of $5,000 to show a movie for a week and paying a fee of $2 per customer. Will your choice affect your fixed and variable costs? How?

12. What is likely to happen to your marginal costs when adding output requires working beyond an eight-hour day, if workers must be paid time-and-a-half wages beyond an eight-hour day?

13. If your university pays lecture note takers $20 per hour to take notes in your economics class and then sells subscriptions for $15 per student, is the cost of the lecture note taker a fixed or variable cost of selling an additional subscription?

14. The Lighthouse Safety Vest Co. makes flotation vests for recreational boaters. They currently employ 50 people and produce 12,000 vests per month. Lighthouse managers know that when they hire one more person, monthly vest production will increase by 200 vests. They pay workers $1600 per month.
15. What is the marginal product of the 51st worker?
16. What is the marginal cost to produce one more vest? (Hint:Think of the marginal cost as the additional worker’s pay divided by the changes in output.)
17. If labor is the only variable factor of production, will the average variable cost of production rise or fall as a result of hiring a 51st worker? Why?
18. What happens to the marginal cost of a vest when the fifty-second worker is added and the marginal product drops to 160 vests per month?

15. Use the graph to answer the following questions.
16. Curve A represents which cost curve?
17. Curve B represents which cost curve?
18. Curve C represents which cost curve?
19. Curve D represents which cost curve?
20. Why must curve D pass through the minimum points of both curve B and curve C?
21. What significance does the point where curve A intersects curve D have?
22. Fill in the rest of the cost function for Bob’s Bowling Balls.

17. Buffalo Bill has a potato chip company, Buffalo’s Chips. He is currently losing money on every bag of chips he sells. Mrs. Bill, who has just completed an economics class, tells Bill he could make a profit if he adds more machines and produces more chips. How could this be possible? What is Mrs. Bill assuming about the output range in which Bill is currently producing?

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18. You have the following information about long-run total cost for the following firms:

1. Do any of these firms experience constant returns to scale? How do you know?
2. Do any of these firms experience diseconomies of scale? How do you know?
3. Do any of these firms experience economies of scale? How do you know?