Economics 101
Fall 2001
Practice
Questions 5
1.Robinson runs
a bakery. The bakery itself costs $2000 per week to maintain, and he hires each
worker for $300 per week. He needs just the bakery and the workers to produce
breads. Fill in the following table of weekly costs.
Workers
Output
Hired TFC TVC TC MC AFC AVC ATC
0
0
1
1
2
3
3
6
4
10
5
15
2. The following
equations describe the market for Apple computer.
Supply : P =10+2Q Demand : P =100-Q
Apple’s total cost
function is TC=10Q2+Q+10, which implies MC=20Q+1. Answer the
following questions.
a.
Find the market
equilibrium price and quantity.
b.
At which
production quantity is total average cost minimized?
c.
Does Apple
computer exhibit economies of scale? If not, what does it exhibit?
3. If production
of a good is characterized by economies of scale
a.
long-run fixed
cost will less than double when output is doubled
b.
long-run total
cost will more than double when output is doubled
c.
long-run variable
cost will less than double when output is doubled
d.
long-run variable
cost will more than double when output is doubled
4. The Microsoft
Company produces windows 98 with a production process that exhibits constant returns
to scale in the long run. Microsoft is producing 200 copies and LRATC is $20.
What is the new LRATC if Microsoft were to double the number of copies?
a. $50 b.
$40 c. $30 d. $20 e. $10
Now, suppose the
production shows economies of scale, what is the new LRATC?
a. $50 b.
$40 c. $30 d. $20 e. $10
5. Economies of
scale exist when the:
a.
total average cost
falls
b.
total average cost
rises
c.
total fixed cost
falls
d.
marginal cost
rises
e.
marginal cost
decreases
6. Consider the
following table.
|
Quantities |
MC |
ATC |
|
1 2 3 4 5 |
60 40 50 () 70 |
70 55 50 60 78 |
What is the MC
when the production quantity is 3 units? Does this production plan exhibit
economies of scale? If not, what does it exhibit?
7. Consider following
table. The first column is price, the second column is quantity sold, and the
third column represents total cost at the given production scale.
|
Price |
Quantity |
Total Cost |
|
1 2 3 4 5 |
3 5 6 7 9 |
10 13 20 30 35 |
If you know that
the profit maximization quantity is determined by MR=MC, what is the profit
maximization production price and quantity?