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?