ECON312N Week 3 Homework Latest 2019 September

ECON312N
Principles of Economics

Week 3 Homework

Question 1

GM cuts jobs at its
Australian manufacturing unit

GM will cut 500 jobs, or about 12% of its
workforce, at its Australian plant because of a sharp fall in demand for
its locally-made “Cruze” small
car.

Source: The Wall
Street Journal , April 8, 2013

As GM cuts its workforce, how will the marginal product and
average product of a worker change in the short
run?

Suppose that before
the cuts the marginal product of GM workers is below their average product.

________________________

As the number of
workers decreases, the marginal product
of a GM worker ______ and the average
product of a GM worker ______ in the
short run.

?decreases; decreases

?increases; increases

?decreases; increases

?increases; decreases

does not? change; does not change

Question 2

Maryland farmers turn
from tobacco to flowers

Maryland tobacco
farmers will be subsidized if they switch from growing tobacco to growing crops
such as flowers and organic vegetables.

Source: The New York
Times ,February 25, 2001

How does offering
farmers a payment to exit tobacco growing influence the opportunity cost of
growing tobacco?

What is the opportunity
cost of using the equipment owned by a tobacco
farmer?

______________________

Offering farmers a
payment to exit tobacco growing _______
the opportunity cost of growing tobacco.

The opportunity cost
of using the equipment owned by a tobacco farmer is _______.

?decreases; the sum of the implicit and
explicit costs of using the tobacco equipment

?increases; the next best alternative?
forgone, which could be the production of flowers and organic vegetables

?decreases; the explicit cost of using the
tobacco equipment

does not? change; the next best alternative?
forgone, which could be the production of flowers and organic vegetables

?increases; the implicit cost of using the
tobacco equipment

Question 3

Perfect competition is
characterized by all of the following EXCEPT

considerable advertising by individual firms.

firms produce an identical product.

a large number of buyers and sellers.

buyers and sellers are well informed about
prices.

no restrictions on entry into or exit from
the industry.

Question 4

As a typical firm
increases its output, its marginal cost

is negative at first and then positive.

is constant.

decreases.

increases at first and then decreases.

decreases at first and then increases.

Question 5

Coffee king Starbucks
raises its prices

Starbucks will raise
its price because the wholesale price of milk has risen by nearly 70% in the past year. There’s a lot of milk in those Starbucks lattes, noted John Glass, CIBC World Markets
restaurant analyst.

Source: USA Today,
July 24, 2007

Is the cost of milk a
fixed cost or a variable cost?

Describe how the
increase in the price of milk changes
Starbucks’ short-run cost curves.

____________________

The cost of milk is
a ______ cost. An increase in the cost
of milk shifts the ______ curves upward.

??variable; average total? cost, average
variable? cost, total? cost, total variable? cost, and marginal cost

??fixed; average total? cost, average fixed?
cost, total? cost, and total fixed cost

??variable; total? cost, total variable?
cost, and total fixed cost

??fixed; total cost and average total cost

Question 6

The main source of
economies of scale is

reductions in the price of factors of
production.

greater specialization of both labor and
capital.

decreasing marginal product.

increasing average costs.

the ability to hire less labor.

Question 7

When an economist uses
the term “cost” referring to a firm, the economist refers to the

price of the good to the consumer.

opportunity cost of producing a good or
service, which includes both implicit and explicit cost.

explicit cost of producing a good or service
but not the implicit cost of producing a good or service.

cost that can be actually verified and
measured.

implicit cost of producing a good or service
but not the explicit cost of producing a good or service.

Question 8

A perfectly
competitive firm is producing 50 units of output, which it sells at the market
price of $23 per unit. The firm’s average total cost is $20. What is the firm’s
total revenue?

$23

$150

$1,000

$20

$1,150

Question 9

Kenya owns a lawn
mowing company. His total product schedule is in the above table. Decreasing
marginal returns first occur with the

third worker.

fourth worker.

fifth worker.

first worker.

second worker.

Question 10

U.S. Steel Lays Off
756

With a drop in the
demand for steel pipe and tube, U.S.
Steel Corporation will idle plants in Ohio and Texas and lay off 756 workers.

Source: The Wall
Street Journal , January 6, 2015

As U.S. Steel
responded to the fall in demand, how did
its marginal cost change?

What can you say about
minimum AVC in the plants that closed?

________________

As U.S. Steel
responded to the fall in demand, its
marginal cost ______.

The minimum average
variable cost in the plants that closed must have been ______.

?increased; less than the market price

?decreased; greater than the market price

?decreased; less than the market price

?decreased; equal to average fixed cost

?increased; greater than the market price

Question 11

Jennifer owns a pig
farm near Salina, Kansas. Last year she earned $39,000 in total revenue while
incurring $38,000 in explicit costs. She could have earned $27,000 as a teacher
in Salina. These are all her revenue and costs. Therefore Jennifer earned an

None of the above answers is correct.

accounting profit of $1,000 but incurred an
economic loss of $38,000.

accounting profit of $1,000 but incurred an
economic loss of $26,000.

accounting profit of $1,000 but incurred an
economic loss of $65,000.

economic profit of $1,000.

Question 12

Metropolitan Museum
completes round of layoffs

The museum cut 74 jobs
and 95 other workers retired. The museum also laid off 127 other employees in
its retail shops. The cut in labor costs is
$10 million, but the museum expects no change in the number of visitors.

Source: The New York
Times, June 22, 2009

Explain how the job
cuts and shop closings will change the museum’s short-run average cost curves
and marginal cost curve.

______________________

A cut in labor but no
change in output increases the marginal product of labor.

What is the effect on
the marginal cost curve?

The marginal cost curve shifts downward.

A leftward movement along the marginal cost
curve occurs.

A rightward movement along the marginal cost
curve occurs.

The marginal cost curve shifts upward.

Question 13

The long run is a time
period that is

five years or longer.

long enough to change the size of the firm’s
plant and all other inputs.

None of the above answers describes the long
run.

long enough to change the amount of labor
employed but not to change the size of the plant.

long enough to change the amount of labor
employed.

Question 14

Kenya owns a lawn
mowing company. His total product schedule is in the above table. The marginal
product of the fourth worker is ________ lawns mowed per week.

5

320

25

20

80

Question 15

Anna owns a dog
grooming salon in Brunswick, Georgia. The above table has Anna’s total product
schedule. Anna pays each worker $300 per week and she pays rent of $600 a week
for her salon. These are her only costs. When Anna has a staff of 6 workers,
her average fixed cost equals

$6.00.

$2.50.

$10.00.

$600.

$7.50.

Question 16

The law of decreasing
returns states that as a firm uses more of a

fixed input and a variable input, the
marginal product of the fixed input and the marginal product of the variable
input both decrease.

variable input, with a given quantity of
fixed inputs, the marginal product of the variable input eventually decreases.

variable input, total output will increase
indefinitely.

fixed input, with a given quantity of
variable inputs, the marginal product of the fixed input eventually decreases.

variable input, output will begin to fall
immediately.

Question 17

To produce more output
in the short run, a firm must employ more of

its fixed resources.

its variable resources.

the least costly resources regardless of whether
they are fixed or variable.

all its resources.

Firms cannot produce more output in the short
run.

Question 18

Paulette owns a pizza
parlor. Her total cost schedule is in the above table. Her total variable cost
of producing four pizzas per hour is

$49.

$20.

$51.

$71.

Some amount, but more information is needed
to determine this total variable cost.

Question 19

Anna owns a dog
grooming salon in Brunswick, Georgia. The above table has Anna’s total product
schedule. Anna pays each worker $300 per week and she pays rent of $600 a week
for her salon. These are her only costs. When Anna has a staff of 2 workers,
her average fixed cost equals

$2,400.

$6.00.

$7.50.

$600.

$10.00.

Question 20

The Jerry-Berry Ice
Cream Shoppe’s total cost schedule is in the above table. Based on the table,
the marginal cost of producing the fourth gallon of ice cream is

$32.

$8.

$2.

$3.

$5.

Question 21

Labor (workers) Output (bikes) Total fixed costs (dollars) Total variable cost (dollars) Total cost (dollars)

0 0 200 ? ?

1 20 ? 100 ?

2 50 ? ? ?

3 60 ? ? ?

4 64 ? ? ?

The table above gives
costs at Jan’s Bike Shop. Unfortunately, Jan’s record keeping has been spotty.
Each worker is paid $100 a day. Labor costs are the only variable costs of
production. What is the total fixed cost of producing 64 bikes?

$400

$600

$300

$500

$200

Question 22

California’s
commercial drone industry is taking off

Customers are finding
ever more creative ways to use drones, and 3E Robotics Inc., America’s largest producer of consumer
drones, expects sales to soar.

Source: Los Angeles
Times, June 13, 2015

Explain what is
happening in the market for commercial drones.

How would you expect
the price of a drone to change in the short run and the long run?

How would you expect
the economic profit of a drone producer such as 3D Robotics to change in the
short run and in the long run?

_________________

In the short run, the
equilibrium price of a drone _______ and
the economic profit of drone producers
_______.

?rises; remains unchanged

?falls; remains unchanged

?falls; decreases

?rises; increases

Question 23

If concerns about
mad-cow disease impose economic losses on the perfectly competitive cattle
ranchers, exit by the ranchers combined with no further changes in the demand
for beef will force the price of beef to

fluctuate, with the trend being lower prices.

decrease.

not change.

increase.

probably change, but more information about
the market supply of beef is needed to answer the question.

Question 24

Which of the following
illustrates economies of scale, diseconomies of scale, and constant returns to
scale?

Liza’s average total
cost changes from $4.50 to $2.20 when she increases salad production
from 7 to 9 an hour.

Sam’s average total
cost changes from $1.30 to $2.80 when he increases smoothie production
from 5 to 8 gallons an hour.

Tina’s average total
cost remains at $3 when she increases
pizza production from 12 to 13 an hour.

Sam faces economies of? scale; Tina faces
diseconomies of? scale; Liza faces constant returns to scale.

Sam faces economies of? scale; Liza faces
diseconomies of? scale; Tina faces constant returns to scale.

Liza faces economies of? scale; Sam faces
diseconomies of? scale; Tina faces constant returns to scale.

Tina faces economies of? scale; Sam faces
diseconomies of? scale; Liza faces constant returns to scale.

Question 25

The market demand
curve in a perfectly competitive market is ________ and the demand curve for a
perfectly competitive firm’s output is ________.

downward sloping; downward sloping

horizontal; downward sloping

downward sloping; upward sloping

horizontal; horizontal

downward sloping; horizontal

Question 26

The above table has
the total revenue and total cost schedule for Omar, a perfectly competitive
grower of rutabagas. Omar’s total profit is maximized when he produces ________
bushels of rutabagas.

3

5

7

6

8

Question 27

The above figure
illustrates a perfectly competitive firm. If the market price is $10 a unit, to
maximize its profit (or minimize its loss) the firm should

produce between 10 and less than 30 units.

shut down.

produce 30 units.

produce more than 30 units and less than 40
units.

produce 40 units.

Question 28

Airlines seek new ways
to save on fuel as costs soar

Fuel is an airline’s
biggest single expense. In 2008, the
cost of jet fuel rocketed. Airlines tried to switch to newer generation
aircraft, which have more fuel-efficient engines.

Source: The New York
Times , June 11, 2008

Explain how a
technological advance that makes airplane engines more fuel efficient changes
an airline’s average variable cost, marginal cost, and average total cost.

A technological
advance that makes an airplane engine more fuel efficient ______ an airline’s
average variable cost and ______ an
airline’s marginal cost.

?decreases; decreases

does not? change; decreases

?increases; increases

?decreases; does not change

Question 29

Anna owns a dog
grooming salon in Brunswick, Georgia. The above table has Anna’s total product
schedule. Anna pays each worker $300 per week and she pays rent of $600 a week
for her salon. These are her only costs. When Anna has a staff of 2 workers,
her average total cost equals

$300.

$12.00.

$10.00.

$1,200.

$2,400.

Question 30

Jennifer’s Bakery Shop
produces baked goods in a perfectly competitive market. If Jennifer decides to
produce her 100th batch of cookies, the marginal cost is $120. She can sell
this batch of cookies at a market price of $110. To maximize her profit,
Jennifer should

charge $120 for this batch.

shut down.

not produce this additional batch.

produce this batch of cookies because their
MR exceeds their MC.

produce this batch of cookies because they
will help lower her average fixed cost.