Question 1:
Suppose Jill Johnson operates her pizza restaurant in a building she owns in the center of the city. Similar buildings in the neighborhood rent for $4,000 per month. Jill is considering selling her building and renting space in the suburbs for $3,000 per month. Jill decides not to make the move. She reasons, "I would like to have a restaurant in the suburbs, but I pay no rent for my restaurant now, and I don't want to see my costs rise by $3,000 per month." What do you think of Jill's reasoning?
Question 2:
a. Fill in the missing values in the following table.
b. Use the numbers in the table to draw one graph showing how total output increases with the quantity of workers hired and a second graph showing the marginal product of labor and the average product of labor.
Question 3:
Suppose the total cost of producing 10,000 tennis balls is $30,000, and the fixed cost is $10,000.
a. What is the variable cost?
b. When output is 10,000, what are the average variable cost and the average fixed cost?
c. Assuming that the cost curves have the usual shape, is the dollar difference between the average total cost and the average variable cost greater when the output is 10,000 tennis balls or when the output is 30,000 tennis balls? Explain.
Question 4:
Use the information in the following graph to find the values for the following at an output level of 1,000.
a. Marginal cost
b. Total cost
c. Variable cost
d. Fixed cost
Question 5:
Suppose that Jill Johnson has to choose between building a smaller restaurant and a larger restaurant. In the following graph, the relationship between costs and output for the smaller restaurant is represented by the curve ATC1, and the relation-ship between costs and output for the larger restaurant is represented by the curve ATC2.
a. If Jill expects to produce 5,100 pizzas per week, should she build a smaller restaurant or a larger restaurant? Briefly explain.
b. If Jill expects to produce 6,000 pizzas per week, should she build a smaller restaurant or a larger restaurant? Briefly explain.
c. A student asks, "If the average cost of producing pizzas is lower in the larger restaurant when Jill produces 7,500 pizzas per week, why isn't it also lower when Jill produces 5,200 pizzas per week?" Give a brief answer to the student's question.