Q1. The following table shows data for the simple production function used. Capital costs this firm $20 per unit, and labor cost $10 per worker.
|
K
|
L
|
TP
|
TFC
|
TVC
|
TC
|
AFC
|
AVC
|
ATC
|
MC
|
|
10
|
0
|
0
|
|
|
|
|
|
|
|
|
10
|
1
|
5
|
|
|
|
|
|
|
|
|
10
|
2
|
15
|
|
|
|
|
|
|
|
|
10
|
3
|
30
|
|
|
|
|
|
|
|
|
10
|
4
|
50
|
|
|
|
|
|
|
|
|
10
|
5
|
75
|
|
|
|
|
|
|
|
|
10
|
6
|
85
|
|
|
|
|
|
|
|
|
10
|
7
|
90
|
|
|
|
|
|
|
|
|
10
|
8
|
92
|
|
|
|
|
|
|
|
a. From the information in the table, calculate total fixed cost(TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost(AVC), average total cost (ATC), and marginal cost(MC).
b. Graph your results, putting TFC, TVC, and TC on one graph and AFC, AVC, ATC and MC on another.
c. AT what point is average total cost minimized? At what point is average variable cost minimized?
Q2. The follow discussion based on Gabriel Kahn, "Made to Measure: Invisible Supplier Has Penny's Shirt's All Buttoned Up," Wall Street Journal, September 11, 2003, described a new inventory used by J.C. Penny: In a industry where the goal is a rapid turnaround of merchandise, J.C.Penny store now hold almost no extra inventory of house brand shirts. Less than a decade ago, Penny would have stored thousands of them in warehouse across the US, tying up capital and slowly going out of style. The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penny's shirts directly from its stores in North America for analysis through a computer model it designed. The Hong Kong company then decides how many shirts to make, and in what styles, color and sizes. The manufacturer sends the shirts directly to each Penny store, bypassing the retailer's warehouse and corporate decision makers.
a. Discuss how this case illustrates the concept of the opportunity cost of capital
b. How does this innovation also help in demand management?
Q3. A company operates plants in both the United States (where capital is relatively cheap and labor is relatively expensive) and Mexico (where capital is relatively expensive and labor is relatively cheap)
a. Why is it unlikely that the cost-minimizing factor choice will be identical between the two plants? Explain
b. Under what circumstances will the input choice be relatively similar?
Q4. Discuss how the "tale of two auto plants" in the opening article shows how the choices facing a firm marking a long-run decision on plant location are much greater than those for a firm with a plant already in operation. Why is the long run considered to be planning horizon?