week 6 quiz

Problem # 2 Crew Brew produces a popular brand of beer in its mini-brewery located on a small river in Wisconsin. It uses a special formula, combined with the fresh water from the local stream, to produce a drink popular with local folks and tourists who visit during the summer fishing season, and autumn deer hunting season. The production function of Crew follows the formula: Q=50(K+L)Where Q = Barrels of beer, K = units of capital, and L = units of labor. a) Suppose that capital can be purchased for $8 per unit, and labor costs $6 per unit. What is the optimal combination of inputs for the firm to employ? b) Suppose that the cost of inputs changes to $7 for a unit of capital, and $9 for a unit of labor. What is the new optimal combination of inputs?

Modified True or False: State whether each statement is true or false. If the statement is false, briefly explain why it is so, and then restate it to make it true. Spreading overhead is the process of dividing total fixed costs by more units of output, which implies that average fixed cost declines as quantity declines. Diminishing returns, or decreasing marginal product, imply diminishing marginal cost. At the output level where MR = MC, if the corresponding P is above AVC but below ATC, the loss-minimizing move is to shut down or stop production.  A firm that is breaking even, or earning a zero level of profit, is one that is earning exactly a normal rate of return, which implies that new investors are not attracted, but current ones are not running away either. Zero economic profit implies zero accounting profit. In the long run, if price is below average total cost, then it pays to just shut down. The shapes of long-run cost curves follow directly from the assumption of a fixed…

Suppose a competitive firm operation under the following conditions: price of output is $20, the profit maximizing level of output is 32,000 units, and the total cost(full economic cost) of producing these 32,000 units is $600,000. The firm’s only fixed factor of production (capital) is a $1 million building and you would like to include the opportunity cost of this investment at the going interest rate of 5%. Should this firm close down immediately? What will it do in the long run?

Please explain briefly that why the answers are true or false. Question attached

You are considering opening a small flower store. You anticipate that you will earn $100,000 each year in revenue. It will cost you $30,000 each year to rent the space necessary to run your business. Additionally, you will need to spend $10,000 each year on flower seeds, utilities, and other expenses necessary to operate your flower shop. You have just graduated from college with a degree in economics and have received an offer to work for a firm with a yearly salary of $70,000. What is your anticipated economic profit of opening the flower shop?

Which of the following is most likely to be an implicit cost?*rental income foregone on assets owned by the firmsalaries paid to the firm’s board of directorstransportation cost on raw materialsinterest payments on an outstanding loan of the firm Economic profit is frequently*greater than total revenue.defined as total revenue minus total fixed cost.irrelevant to the owner of a firm who is concerned instead with accounting profits.less than accounting profit. From an economics perspective, accounting methods tend to*overstate profits and losses.overstate profits and understate losses.understate profits and overstate losses.understate profits and losses. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. Your aunt’s opportunity costs comprise*the accounting costs.the accounting costs and the implicit costs.all…

Mike spends RM35,000 per annum on painting supplies and storage space. He recently received two job offers from a famous marketing firm – one offer was for RM 95,000 per year, and the other was for RM 105,000. However, he turned both jobs down to continue a painting career. If Mike sells 20 paintings per year at a price of RM 8,000 each: Question 1: What are his accounting profits? Question 2: What are his economic profits?

Increasing returns and imperfect competition: (a) The production function for the word processor is Y = X – 100 million if X is larger than 100 million, and zero otherwise. By spending $100 million, you create the first copy, and then $1 must be spent distributing it (say for the DVD it comes on). For each dollar spent over this amount, you can create another copy of the software. (b) The production function is plotted in Figure 6.5. Output is zero whenever X is less than 100 million. Does this production function exhibit increasing returns? Yes. We spend $100 million (plus $1) to get the first copy, but doubling our spending will lead to 100 million copies (plus 2). So there is a huge degree of increasing returns here. Graphically, this can be seen by noting that the production function “curves up” starting from an input of zero, a common characteristic of production functions exhibiting increasing returns. (Constant returns would be a straight line starting…

What costs and revenues do economists include when calculating profit that accountants don’t include? Economists and accountants calculate profit with the same costs and revenues. The only difference is that economists work with predicted costs and revenues for the future, whereas accountants work with costs and revenues from previous years. In addition to the explicit costs and revenues used by accountants, economists include all implicit costs and revenues when calculating profit. This means that they include opportunity costs and changes in the value of any assets owned by the firm. In addition to the implicit costs and revenues used by accountants, economists include all explicit costs and revenues when calculating profit. This means that they include labor costs and changes in the value of any assets owned by the firm. In addition to the explicit costs and revenues used by accountants, economists include all implicit costs and revenues when calculating…

You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule: Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. Should you accept the offer? Why or why not. Single line text.

Question 21.21.   Which would be an implicit cost for a firm?  The cost  of worker wages and salaries for the firm.        paid for leasing a building for the firm.        paid for production supplies for the firm.        of wages foregone by the owner of the firm. Question 22.22.   Economic profits are equal to  total revenues minus fixed costs.        total revenues minus the costs of raw materials.        total revenues minus the opportunity costs of all inputs.        gross profit minus selling and operating expenses. Question 23.23.   The long run is a period of time, or a time frame, in which   all resources are fixed.        the level of output is fixed.        the amount of all resources can be varied.        the capacity of the production plant is fixed.

The sole proprietor of the bookstore receives all accounting profits earned by her firm and a $28,000-a-year salary she pays herself. She has a standing salary offer of $44,000 a year if she agrees to work for a large corporation. If she had invested her capital company, she estimates that would have returned $32,000 a year. Last year, her accounting profit was $60,000. What was her economic profit? (Show your steps)

Modified True or False: State whether each statement is true or false. If the statement is false, briefly explain why it is so, and then restate it to make it true.    The shapes of long-run cost curves follow directly from the assumption of a fixed factor of production, which implies diminishing returns. The optimal scale of plant is the scale of plant that maximizes average cost. In the long-run competitive equilibrium, each individual firm chooses a scale of operations that minimizes its long-run average cost.

Modified True or False: State whether each statement is true or false. If the statement is false, briefly explain why it is so, and then restate it to make it true.    The shapes of long-run cost curves follow directly from the assumption of a fixed factor of production, which implies diminishing returns. The optimal scale of plant is the scale of plant that maximizes average cost. In the long-run competitive equilibrium, each individual firm chooses a scale of operations that minimizes its long-run average cost.   Answer correctly and explain within 30mins will give you positive feedback.

You are a manager at Glass Incorporated—a mirror and window supplier. Recently, you conducted a study of the production process for your single-side encapsulated window. The results from the study are summarized in the following table and are based on the 8 units of capital currently available at your plant. Each unit of labor costs RM 60, each unit of capital is RM 20, and your encapsulated windows sell for RM 12 each. Labor L Capital K Output Q Marginal Product of Labor MPL Average Product of Labor APL Average Product of Capital APK Value Marginal Product of Labor VMPL     0 8 0           1 8 10           2 8 30           3 8 60           4 8 80           5 8 90           6 8 95           7 8 95           8 8 90           9 8 80           10 8 60           11 8 30…

Question 37 [ DIFFICULT] Consider two firms, both producing the same product, using the same production technology given by: q = √√K This production technology implies the following MRTS: K MRTS=AY ΔΧ L where K is the amount of capital used and L is the amount of labour used to produce output. It can be shown that this production technology implies the following minimised total cost function: TC = 2q√w√r where w represents the per-unit cost of labour and r represents the per-unit cost of capital. Suppose each firm can hire labour at $1 per unit and capital at $9 per unit. Each firm produces 90 units of output. One firm (Firm 1) chooses its input combination to minimise costs of production. However, Firm 2 instead produces output using twice as much labour as Firm 1. Compared to Firm 1, how much higher are Firm 2's cost of production? a) $270 b) $67.50 c) $275 d) $135 e) $132 Hint: It can be shown that the cost-minimising quantities of capital and labour (chosen by Firm 1) are K = 30…

5. A firm has two plants (A) and (B) for production. The Total cost function for each is given by: TCA = 12 + 7QA - 2QA2 + 0.72QA3 and TCB = 5 + 3QB + 1.5QB2 where TCA and TCB are total costs and QA and QB are quantity produced from each plant. The firm wishes to minimize the cost of producing any given amount of product. It is also known that in allocating the products to the two plants, the firm must produce 20 bags. Find the minimum values of QA and QB and confirm that the cost is minimised

**Practice** Consider a profit-maximizing multinational pharmaceutical company that uses a rare plant to produce expensive drugs. That plant cannot be farmed; it only grows naturally in tropical forests of a poor country, and is hard to find. The company hires local inhabitants search for, and gather, these plants. The amount of plants found depends on worker effort but also luck (there may be no plants in the area they look; or they may be sick on some days andthus less effective at plant gathering, even if they search all day). It is very expensive for the firm to observe worker effort, as that would require hiring additional workers to monitor the plant gatherers, and these workers would have to be well-paid so that they couldn’t be easily bribed. Which of the following statements are correct?(I) If the multinational offers a fixed monthly compensation to the plant gatherers (that is, the same amount of money regardless of how many plants they deliver), that might generate a moral…

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1. You and your friend Casey N. have just stared a new firm manufacturing electric longboards and are now confronted by your company's long-run options for production. You need to build a production facility and you need to choose between two locations: Ohio or Mississippi. = a. Given the available technology, your firm's production function will be q 2Lª K¹, regardless of where the production facility is located. Find an expression for your firm's MRTS. Explain what the MRTS means in as plain language as possible. b. Use whatever method you prefer to find expressions for the cost minimizing levels of L* and K*. Use your results to write out the firm's long-run cost function [C(w, r,q)]. 2 c. Suppose α = 11/1, b = 1/1/2 , b = regardless of where you locate the plant. If the firm locates in Ohio, the firm will have to pay a wage, w = $64, and a cost of capital of r = $100. If it locates the plant in Mississippi it would have to pay lower wages, w = $36, but the cost of capital would be…

Exercises 47-50 describe a number of business ventures. For each exercise, a. Write the cost function, C. b. Write the revenue function, R. c. Determine the break-even point. Describe what this means. 47. A company that manufactures small canoes has a fixed cost of $18,000. It costs $20 to produce each canoe. The selling price is $80 per canoe. (In solving this exercise, let x represent the number of canoes produced and sold.) 48. A company that manufactures bicycles has a fixed cost of $100,000. It costs $100 to produce each bicycle. The selling price is $300 per bike. (In solving this exercise, let x represent the number of bicycles produced and sold.) 49. You invest in a new play. The cost includes an overhead of $30,000, plus production costs of $2500 per performance. A sold-out performance brings in $3125. (In solving this exercise, letxrepresent the number of sold-out performances.) 50. You invested $30,000 and started a business writing greeting cards. Supplies cost 2¢ per card…

Imagine that you own one of several popular restaurants in your area. Due to the Covid Pandemic of 2020, all restaurants were forced to close down for two months. You are now allowed to reopen your restaurant to the public. During this time, labor costs were reduced however, overhead such as rent, electricity, etc. was still a large percentage of your total costs. You are facing a dilemma; you are short on funds. What options should you consider? For example, should you raise menu prices to make up for the lost revenue? Should you lower menu prices to attract more customers? Is your customer volume elastic? If you raise prices and the customer volume falls will the increase in prices compensate for the loss of volume? If it does not, is there some way you can make up the revenue shortfall? If you lower menu prices and revenue falls is there some way you can increase your business revenue?  Explain your reasoning in terms of demand and elasticity.

Consider a new business that invests $20 million into a plant to manufacture loaves of bread. The market for bread is say around 100 million loaves and the new firm expects that it will be able to obtain a market share of around 5%. At that level of production, the total cost of production is $10 million. Let us say that it targets a 20% return on its investment. What should the price of a loaf of bread be? Use the principle of target rate of return pricing. If the mark-up rate is 10% what will the full-cost price be?

Regarding the question above:   Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000 (not sunk). The normal rate of return is 5%.   c. If the new shop could operate under the same conditions as the original location is it a good business decision to expand?   d. What would be the new shop’s daily profit?

Which of the following would be the best starting point on which to focus if an air conditioner manufacturer wants to look at its total costs of production in the short run? Divide the variable costs of production by the quantity of output. Divide the total costs of production by the quantity of output. Divide total costs into two categories: variable costs that can't be changed in the short run and fixed costs that can be. Divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be.

According to the Resource-Based View, which of the following is most likely to result in sustainable above-normal profit rates?     Access to a strong CEO that can lead the firm to an unprecedented level of market share     Access to intangible resources that are currently producing significant value     Access to complex capabilities that are currently producing significant value     Access to tangible resources that are currently producing significant value.