7.1 Distinguish
between explicit and implicit costs, giving examples of each. What are
some explicit and implicit costs of attending college?
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7.2 Distinguish
between accounting profit, economic profit, and normal profit. Does
accounting profit or economic profit determine how entrepreneurs
allocate resources between different business ventures? Explain.
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7.3 Which of the following are short-run and which are long- run adjustments?a. Wendy’s builds a new restaurant,b. Harley-Davidson Corporation hires 200 more production workers.c. A farmer increases the amount of fertilizer used on his corn crop.d. An Alcoa aluminum plant adds a third shift of workers.
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7.4
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7.5 Why
can the distinction between fixed costs and variable costs be made in
the short run? Classify the following as fixed or variable costs:
advertising expenditures, fuel, interest on company-issued bonds,
shipping charges, payments for raw materials, real estate taxes,
executive salaries, insurance premiums, wage payments, depreciation and
obsolescence charges, sales taxes, and rental payments on leased office
machinery, "There are no fixed costs in the long run; all costs are
variable." Explain.
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7.6 List
several fixed and variable costs associated with owning and operating
an automobile. Suppose you are considering whether to drive your car or
fly 1000 miles to Florida for spring break. Which costs—fixed, variable,
or both—would you take into account in making your decision? Would any
implicit costs be relevant? Explain.
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7.7 A
firm has fixed costs of $60 and variable costs as indicated in the
table at the bottom of this page. Complete the table and check your
calculations by referring to question 4 at the end of Chapter 8. LO3
a. Graph
total fixed cost, total variable cost, and total cost. Explain how the
law of diminishing returns influences the shapes of the variable-cost
and total-cost curves.
b. Graph AFC, AVC, ATC, and
MC. Explain the derivation and shape of each of these four curves and
their relationships to one another. Specifically, explain in
nontechnical terms why the MC curve intersects both the AVC and the ATC
curves at their minimum points.
c. Explain how the
location of each curve graphed in question 7b would be altered if (1)
total fixed cost had been $100 rather than $60 and (2) total variable
cost had been $10 less at each level of output. ...
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7.8 Indicate
how each of the following would shift the (1) marginal-cost curve, (2)
average-variable-cost cufve, (3) average-fixed-cost curve, and (4)
average-total-cost curve of a manufacturing firm. In each case specify
the direction of the shift.a. A reduction in business property taxes.b. An increase in the nominal wages of production workers.c. A decrease in the price of electricity.d. An increase in insurance rates on plant and equipment.e. An increase in transportation costs.
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7.9 Suppose
a firm has only three possible plant-size options, represented by the
ATC curves shown in the accompanying figure. What plant size will the
firm choose in producing (a) 50,(b) 130, (c) 160, and (d) 250 units of output? Draw the firm's long-run average-cost curve on the diagram and describe this curve....
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7.10 Use
the concepts of economies and diseconomies of scale to explain the
shape of a firm's long-run ATC curve. What is the concept of minimum
efficient scale? What bearing can the shape of the long-run ATC curve
have on the struciure of an industry?
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7.11 LAST
WORD What is a sunk cost? Provide an example of a sunk cost other than
one from this book. Why are such costs irrelevant in making decisions
about future actions?
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