Question 1 :
Compute the Cost. Edward the entrepreneur takes 2 hours to cut a lawn and he cuts 100 lawns per year. He uses solar-powered equipment (truck and mower) that will last forever -and could be sold at any time for $20,000. Edward could earn $8 per hour as a pedicurist. The interest rate is 10 percent.
a. Given his current output level, his marginal cost is $ __ (enter your response to the nearest dollar) and his average cost is $ __ (enter your response to the nearest dollar).
b. Suppose he decides to reduce the number of lawns cut by half, to 50 per year. His new marginal cost is $ __(enter your response to the nearest dollar) and his new average cost is $ __(enter your response to the nearest dollar).
Question 2 : Compute the Costs. Consider a firm that has a fixed cost of $60.
Complete the fixed cost (FC) column. (Enter your responses rounded to the nearest dollar.)
|
Output FC
|
VC TC MC AFC AVC ATC
|
| 1 |
$10
|
| 2 |
18
|
| 3 |
30
|
| 4 |
45
|
| 5 |
65
|
Complete the total cost (TC) column. (Enter your responses rounded to the nearest dollar.)
|
Output
|
FC
|
VC TC MC AFC AVC ATC
|
|
1
|
$60
|
$10
|
|
2
|
60
|
18
|
|
3
|
60
|
30
|
|
4
|
60
|
45
|
|
5
|
60
|
65
|
Complete the marginal cost (MC) column. (Enter your responses rounded to the nearest dollar.)
|
Output
|
FC
|
VC
|
TC MC AFC AVC ATC
|
|
1
|
$60
|
$10
|
$70
|
|
2
|
60
|
18
|
78
|
|
3
|
60
|
30
|
90
|
|
4
|
60
|
45
|
105
|
|
5
|
60
|
65
|
125
|
Complete the average fixed cost (AFC) column. (Enter your responses rounded to the nearest dollar.)
|
Output
|
FC
|
VC
|
TC
|
MC AFC AVC ATC
|
|
1
|
$60
|
$10
|
$70
|
|
|
2
|
60
|
18
|
78
|
$8
|
|
|
60,
|
30
|
90
|
.12
|
|
5
|
60
|
65
|
125
|
20
|
Complete the average variable cost (AVC) column. (Enter your responses rounded to the nearest penny.)
|
Output
|
FC
|
VC
|
TC
|
MC
|
AFC
|
AVC ATC
|
|
1
|
$60
|
$10
|
$70
|
|
$60
|
$
|
|
2
|
60
|
18
|
78
|
$8
|
30
|
|
|
3
|
60
|
30
|
90
|
12
|
20
|
|
|
4
|
60
|
45
|
105
|
15
|
15
|
|
|
5
|
60
|
65
|
125
|
20
|
12
|
|
Complete the average total cost (ATC) column. (Enter your responses rounded to the nearest penny.)
|
Output
|
FC
|
VC
|
TC
|
MC
|
AFC
|
AVC |
|
1
|
$60
|
$10
|
$70
|
|
$60
|
$10 |
|
2
|
60
|
18
|
78
|
$8
|
30
|
9 |
|
3
|
60
|
30
|
90
|
12
|
20
|
10 |
|
4
|
60
|
45
|
105
|
15
|
15
|
11.25 |
|
5
|
60
|
65
|
125
|
20
|
12
|
13 |
Question 3. Draw the Long-Run Cost Curve. Consider the long-run production of shirts. The cost of the indivisible inputs used in the production of shirts is $400 per day. To produce 1 shirt per day, the firm must also spend a total of $5 on other inputs-labor, materials, and other capital. For each additional shirt, the firm incurs the same additional cost of $5.
a. The long-run average cost for: 100 shirts is $ , 200 shirts is $ ___, and 400 shirts is ___.
b. Use the 3-point curved line drawing tool to draw the long-run average-cost curve for 100, 200, and 400 shirts per day. Properly label this curve.
Carefully, follow the instructions above, and only draw the required objects.
Question 4. The Average Cost of a Super-Sized Turbine. Suppose a new super-sized wind turbine is developed. Fill in the blanks in the following table.
|
|
|
Super-Sized Turbine (1,000 kilowatt)
$550,000
$150,000
$225,000
H
40 million
|
|
|
|
|
Purchase price of turbine
Installation cost
Operating and maintenance cost Total cost
Electricity generated (kilowatt-hours)
Average cost (per kilowatt-hour)
|
|