Q. 1 What are the definitions of the following cost concepts: fixed costs, variable costs, and total cost?
2. Give the definition of fixed cost. What sorts of things might be included in fixed cost? Do fixed costs existin long run?
3. Define variable cost. What sorts of things might be included in variable cost? Do variable costs existin long run?
4. What are the formulas for the following cost concepts: average total cost, average fixed cost, average variable cost, and marginal cost?
Problems and Applications
5. Imagine that you are currently a college student working at a part time job. You work 15 hours per week as a taco specialist at TACOS! TACOS! TACOS! and earn $8 per hour. One day you realize you're tired of smelling like refried beans all the time and begin thinking about starting your own business. After doing some investigation you decide to spend 15 hours per week running a photocopy service in your dorm. You have determined the following as likely projected expenses and revenues for your first four weeks:
Revenue: $800 (8,000 copies sold at $.10 per copy)
Costs: $400 for photocopy machine rental
$80 for paper (8,000 pages at $.01 per page)
Using this information you decide to start the business. Did you make a wise decision?
6. You have been hired by the Tootsie Roll Company to analyze their production process. Your predecessorin position left you with the following table:
(a) Fillin blank valuesin table above.
(b) Do the valuesin table represent short-run or long-run production relationships? Explain.
(c) Are these production values consistent with the law of diminishing marginal productivity? Explain.
7. (a) Calculate marginal costs, total costs, average fixed costs, average variable costs and average total costs, given the following table. Costs are $100 when there is no production. Round to the nearest whole number.
(b) Between what levels of output are there increasing marginal productivity?
(c) If labor were the only input to this production process, between what levels of output is the marginal product of labor falling?