ECON 2304 Lecture Notes - Lecture 18: Farmer Jack, Average Variable Cost, Average Cost

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sapphirehamster324

1 Feb 2017

School

University of Houston

Department

Economics

Course

ECON 2304

Professor

Tung Thanh Nguyen

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Document Summary

Chapter 13: the costs of production (day 2) Farmer jack"s output rises by a smaller and smaller amount for each additional worker. As jack adds workers, the average worker has less land to work with and will be less productive. In general, mpl diminishes as l rises whether the fixed input is land or capital (equipment, machines, etc) Diminishing marginal product: the marginal product of an input declines as the quantity of the input increases (other things equal) Farmer jack must pay per month for the land, regardless of how much wheat he grows. The market wage for a farm worker is per month. how much wheat he produces . So farmer jack"s costs are related to. Marginal cost (mc) is the increase in total cost from producing one more unit. Usually, mc rises as q rises, due to diminishing marginal product. Farmer jack is rational and wants to maximize his profit.

Related Questions

Paul's accountant will most likely includes which of the followingcosts on his financial statements?Paul owns a car wash.
A) dividends Paulâs money was earning in the stock market beforePaul sold his stock and bought a car wash
B) All of the given answers are correct.
C) the cost of cleaning supplies
D) wages Paul could earn washing windows
2.
Farmer Jack decided to use his land to grow corn rather than use itto grow vegetables, the amount of money that he gave up by notgrowing vegetable is
A) forgone accounting profit.
B) an explicit cost.
C) an implicit cost.
D) an accounting cost
3.
Intel sold 2 million chips at a price of $10 per chip. For lastyear, the firmâs
A) explicit costs amounted to $20 million.
B) accounting profit amounted to $20 million.
C) economic profit amounted to $20 million.
D) total revenue amounted to $20 million.
4.
Mandy earned $40,000 per year in her Sales Manager job. She quither job in order to start her own catering business. To buy thenecessary equipment, she withdrew $20,000 from her savings, (whichpaid 3 percent interest) and borrowed $30,000 from her uncle, whomshe pays 3 percent interest per year. Last year she paid $25,000for ingredients and had revenue of $60,000. She asked Louis theaccountant and Greg the economist to calculate her profit forher.
A) Louis says her profit is $35,000 and Greg says she lost$5,000.
B) Louis says her profit is $34,100 and Greg says she lost$6,500.
C) Louis says her profit is $33,500 and Greg says her profit is33,500.
D) Louis says her profit is $34,100 and Greg says her profit is$6,500.
5.
In the short run
A) The firm can vary the size of its factory, but not the number ofworkers it employs.
B) The firm can vary neither the size of its factory nor the numberof workers it employs.
C) The firm can vary both the size of its factory and the number ofworkers it employs.
D) The firm can vary the number of workers it employs, but not thesize of its factory.
6.
If a firmâs production function is shown on a graph and the numberof workers hired is the only variable input, then

A) total cost is measured on the horizontal axis and the number ofworkers is measured on the vertical axis.
B) the number of workers is measured on the horizontal axis and thequantity of output is measured on the vertical axis.
C) the number of workers is measured on the horizontal axis andvariable cost is measured on the vertical axis.
D) the number of workers is measured on the horizontal axis andprofit is measured on the vertical axis.
7.
marginal cost is
A) The amount by which total cost rises when the firm produces oneadditional unit of output.
B) is calculated the same way as average cost
C) total cost minus fixed cost.
D) The amount of total cost divided by units of output.
8.
If a firm is at the efficient scale of output it means that thequantity of output is such that it
A) maximizes marginal product.
B) maximizes profit.
C) minimizes average total cost(ATC) and average variable cost isequal to ATC
D) minimizes average total cost (ATC)and marginal cost is equal tothe ATC
9.
When marginal cost is less than average total cost,
A) average total cost is rising.
B) average variable cost must be falling.
C) average total cost is falling.
D) marginal cost must be falling.
10.
Regarding a the firm's cost of production,which of the followingstatements is false?
A) Marginal cost is independent of fixed costs.
B) In the long run, there are no fixed costs.
C) Diminishing marginal product explains increasing marginalcost.
D) Economies of scale is a short-run concept.

ivoryhorse290

(1)

Which of the following employment situations would most closely approximate a monopsony?

	a steel mill in Yokahama, Japan.
	a fast food restaurant in a big city.
	a farmer hiring seasonal workers.
	a large factory in a small town.

(2)

If a monopsonist hires labor, it will choose to hire that quantity at which ___________ and pay a wage rate that is _______________.

	MR = MC; equal to the MRP curve.
	the supply curve intersect the MRP; less than MFC
	MRP = MFC; less than MRP
	the supply curve intersect the MRP; equal to MRP

(3)

Suppose a firm employs both labor and capital. If the ratio of marginal product to price of labor is 50/$10 and the ratio of marginal product of capital to price of capital is 60/$12, the firm should

	maintain the current combination capital and labor.
	buy more labor and less capital because labor is cheaper.
	buy more capital and less labor because capital is cheaper.
	buy more capital because it is more productive than labor.

(4)

Derived demand for labor means that when a firm hires labor, it has to derive its demand

	mathematically.
	based on the labor supply.
	from the demand for the product that the labor produces.
	based on the minimum wage.

(5)

For a firm in perfect competition, the value of the marginal product is

	the value of an additional unit of output measured in terms of additional cost.
	the total value of the total output output divided by the total output.
	additional revenue minus additional cost as a result of an increase in output.
	the price of the product multiplied by the additional output resulting from an additional unit employed.

(6)

A firm that is perfectly competitive will hire labor as long as which of the following is true?

	VMP < W.
	VMP > W.
	MC > MR.
	VMP < MRP.

(7)

The VMP curve slopes downward at some point because

	congestion in the work place lowers marginal product.
	teamwork in the work place increases marginal product.
	the firm hires less labor as the wage rate rises.
	labor supplies less amounts of labor as the wage rate falls.

(8)

Which of the following would not be considered capital in a business?

	The employees
	The factory
	A machine
	Tools

(9)

The increase in the value of a firmâs capital as it increases in age and use is depreciation.

	true
	false

(10)

On a labor market graph, a firmâs demand for labor is

	the wage rate.
	the marginal revenue product curve.
	the marginal product curve.
	indeterminant.

(11)

Why may a householdâs labor supply curve bend backwards at some wage rate?

	The household substitutes labor for leisure.
	The household substitutes leisure for labor.
	Employers demand fewer employees at higher wage rates.
	Households want to supply more labor as the wage rate decreases to maintain incomes.

(12)

The substitution effect is usually stronger than the income effect, thus creating an upward sloping labor supply curve.

	true
	false

(13)

An inelastic demand for labor means that an increase in the wage rate causes a less than proportionate decrease in the quantity of labor demanded.

	true
	false

(14)

Marginal revenue product is

	marginal revenue divided by marginal product.
	marginal revenue times marginal product.
	marginal product minus marginal revenue.
	marginal product plus marginal revenue.

(15)

A firm obeys the least-cost rule by equating the ratios of ___________________ to the ________________ price.

	marginal product; product
	marginal product; factor
	marginal cost; product
	marginal revenue; product

(16)

Suppose the MP of the last unit of capital hired equals 12 and the MP of the last unit of labor hired equals 16.If the price of capital is $8 per unit and the price of labor is $8 per unit, then the firm

	is maximizing its costs with this combination of factors.
	is maximizing its profits with this combination of factors.
	should hire more labor and less capital in order to minimize its costs.
	should hire more capital and less labor in order to minimize its costs.

(17)

For a firm to minimize its costs with more than one factor of production, for every factor, the ratio of the

	marginal product to factor price must be equal.
	marginal revenue product to factor price must be equal.
	marginal revenue product to output must be equal.
	marginal cost to factor price must be equal.

(18)

A monopsony is a firm that, in a specific market, is the only

	seller of a product.
	buyer of a product.
	seller of a factor of production.
	buyer of a factor of production.

(19)

Which of the following businesses would most closely approximate a monopsonist?

	A steel mill in Pittsburgh
	A fast food franchise in a large city
	A large manufacturer in a rural county
	A rancher who hires ranch help

(20)

A firm has the opportunity to buy a machine that costs $2500. It has found the present value of the income generated by the machine to be $2487. It should purchase the machine.

	true
	false

(21)

An increase in the market rate of interest causes

	a leftward shift in the demand for capital curve.
	a rightward shift in the demand for capital curve.
	a movement up the demand for capital curve.
	a movement down the demand for capital curve.

(22)

The characteristic of capital that makes it different from labor is its

	high cost.
	durability.
	rotunda.
	relatively low cost compared to labor.

(23)

The present value of $1000 one year in the future at a 10 percent interest rate is approximately

	$870.
	$909.
	$1000.
	$1909.

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ECON 2304 Lecture Notes - Lecture 18: Farmer Jack, Average Variable Cost, Average Cost

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