1.)
What is the equation for profit (or loss) of a
firm?
2.)
Why is economic profit a better measure of
profitability than accounting profit? Give an example.
3.)
Describe what happens to the total product of a
firm when marginal product is increasing, decreasing, and negative.
4.)
Explain why the marginal cost is the glue that
connects average variable cost and average total cost.
5.)
The following table shows a short-run production
function for laptop computers. Graph (using Excel or graph paper) the
production and use the data to determine where diminishing product begins.
|
Number of workers |
Total output of laptop
computers |
|
0 |
0 |
|
1 |
40 |
|
2 |
100 |
|
3 |
150 |
|
4 |
180 |
|
5 |
200 |
|
6 |
205 |
|
7 |
200 |
|
8 |
190 |
6.)
A pizza business has the cost structure described
below. The firm’s fixed costs are $25 per day. Calculate the firm’s average
fixed costs, average variable costs, average total costs, and marginal costs.
|
Output (Pizzas per day) |
Total cost of output |
|
0 |
$25 |
|
10 |
75 |
|
20 |
115 |
|
30 |
150 |
|
40 |
175 |
|
50 |
190 |
|
60 |
205 |
|
70 |
225 |
|
80 |
250 |
7.)
True or False?
a.
The AFC curve can never rise.
b.
Diminishing marginal product is a long-run
constraint that prevents lower cost.
c.
The MC curve intersects the AVC and ATC curves at
the minimum point along both curves.
d.
Accounting profit is smaller than economic
profit.
e.
Total cost divided by output is equal to marginal
cost.
8.)
An airline has a marginal cost per passenger of
$30 on a route from Boston to Detroit. At the same time, the typical fare
charged is $300. The planes that fly the route are usually full, yet the airline
claims that it loses money on the route. How is this possible?
9.)
Use the information provided in the following
table to fill in the blanks.
|
Output |
Total Fixed Cost |
Total Variable Cost |
Total Cost |
Average Fixed Cost |
Average Variable Cost |
Average Total Cost |
Marginal Cost |
|
0 |
$500 |
$0 |
$500 |
|
|
|
|
|
1 |
$500 |
$200 |
|
|
|
|
|
|
2 |
|
|
$800 |
|
|
|
|
|
3 |
|
|
$875 |
|
|
|
|
|
4 |
|
|
$925 |
|
|
|
|
|
5 |
|
|
|
$100 |
|
|
$25 |
|
6 |
|
$450 |
|
|
|
|
|
10.
Go to www.lemonadegame.com. This free online game places
you in the role of a lemonade seller. Nothing could be simpler, right? Not so
fast! You still need to control costs and ensure you have the right ingredients
on hand to be able to sell. You will need to manage your supply of lemons,
sugar, ice, and cups. You will also set a price and decide how many lemons and
how much sugar and ice to put in each glass of lemonade you produce. This is not
a trivial process, so play the game. Your challenge is to make $20 in profit
over the first five days. (Your business starts with $20, so you need to have
$40 in your account by the end of day 5 to meet the challenge. Are you up to
it?)