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Chapter 7: Average Costs (page 237)
In the average cost curve, there is a point where production reaches a minimum. What is that minimum called?
The minimum is referred to as the optimum level of output or productively efficient level of output.
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Suppose the economy takes a downturn, and that labor costs fall by 50 percent and are expected to stay at that level for a long time. Show graphically how this change in the relative price of labor and capital affects the firm鈥檚 expansion path.
The cost of flying a passenger plane from point A to point B is $50,000. The airline flies this route four times per day at 7 am, 10 am, 1 pm, and 4 pm. The first and last flights are filled to capacity with 240 people. The second and third flights are only half full. Find the average cost per passenger for each flight. Suppose the airline hires you as a marketing consultant and wants to know which type of customer it should try to attract鈥攖he off-peak customer (the middle two flights) or the rush-hour customer (the first and last flights). What advice would you offer?
Suppose that a paving company produces paved parking spaces (q) using a fixed quantity of land (T) and variable quantities of cement (C) and labor (L). The firm is currently paving 1000 parking spaces. The firm鈥檚 cost of cement is \(4,000 per acre covered, and its cost of labor is \)12/hour. For the quantities of C and L that the firm has chosen, MPC = 50 and MPL = 4.
Is this firm minimizing its cost of producing parking spaces? How do you know?
If the firm is not cost-minimizing, how must it alter its choices of C and L in order to decrease cost?
What is the long-run in the microeconomic theory?
A computer company鈥檚 cost function, which relates its average cost of production AC to its cumulative output in thousands of computers Q and its plant size in terms of thousands of computers produced per year q (within the production range of 10,000 to 50,000 computers), is given by AC = 10 - 0.1Q + 0.3q
Is there a learning-curve effect?
Are there economies or diseconomies of scale?
During its existence, the firm has produced a total of 40,000 computers and is producing 10,000 computers this year. Next year it plans to increase production to 12,000 computers. Will its average cost of production increase or decrease? Explain.
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