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Chapter 7: FAQs (page 237)
What are some examples of the factors of production?
Examples of factors of production are
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The short-run cost function of a company is given by the equation TC = 200 + 55q, where TC is the total cost and q is the total quantity of output, both measured in thousands.
What is the company's fixed cost?
If the company produced 100,000 units of goods, what would be its average variable cost?
What would be its marginal cost of production?
What would be its average fixed cost?
Suppose the company borrows money and expands its factory. Its fixed cost rises by \(50,000, but its variable cost falls to \)45,000 per 1000 units. The cost of interest (i) also enters into the equation. Each 1-point increase in the interest rate raises costs by $3000. Write the new cost equation.
Joe quits his computer programming job, where he was earning a salary of \(50,000 per year, to start his own computer software business in a building that he owns and was previously renting out for \)24,000 per year. In his first year of business he has the following expenses: salary paid to himself, \(40,000; rent, \)0; other expenses, $25,000. Find the accounting cost and the economic cost associated with Joe鈥檚 computer software business.
Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether it produces any output.
How does this tax affect the firm鈥檚 fixed, marginal, and average costs?
Now suppose the firm is charged a tax that is proportional to the number of items it produces. Again, how does this tax affect the firm鈥檚 fixed, marginal, and average costs?
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.
In the average cost curve, there is a point where production reaches a minimum. What is that minimum called?
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