2052 Words9 Pages

Q1: CH 8 (10%)
At a management luncheon, two managers were overheard arguing about the following statement: “A manager should never hire another worker if the new person causes diminishing returns.” Is this statement correct? If so, why? If not, explain why not.
The manager quoted in the passage above is incorrect. If the new worker causes diminishing returns, it means that she produces less than the worker hired before her. Let’s say that a restaurant hires workers at the rate of $80 per day. A chef, on average, can prepare 60 meals per day. If you can sell each meal for $10 and the other costs, (without calculating what the company pays for the chefs), are $5 per meal. Let’s say you hire an additional chef and she can prepare only*…show more content…*

750 obtained from [b] above d. What is the average total cost? Total fixed costs are total variable costs (1000) plus total fixed costs (given at $5000). So, TC = 5000+1000 = 6000. Average total costs = TC/Q = 6000/750 =8 e. At the current output rate, is average variable cost increasing, constant, or decreasing? Given that the marginal (last) worker added 10 units and the on the whole average is 25 units, average variable costs must be rising, If AVC is rising, TVC must also be rising Q3: CH 9 (10%) The Largo Publishing House uses 400 printers and 200 printing presses to produce books. A printer’s wage rate is $20, and the price of a printing press is $5,000. The last printer added 8 books to total output, while the last press added 2,500 books to total output. Is the publishing house making the optimal input choice? Why or why not? If not, how should the manager of Largo Publishing House adjust input usage? Printers are $20 each and add 20 books per hour. Therefore, the return on printers is $1 per book. Presses are $5000 and add 1000 books. The press return is $5 per book. In this case, it would appear that it would be more feasible to add more printers and avoid the expensive press cost. This would be the best solution in the short run. The company would have to pay the printer $20 for every hour of work. The press has to be purchased only once, therefore in the long run it is better to purchase the press. The reason is that the press return is $5000 for

750 obtained from [b] above d. What is the average total cost? Total fixed costs are total variable costs (1000) plus total fixed costs (given at $5000). So, TC = 5000+1000 = 6000. Average total costs = TC/Q = 6000/750 =8 e. At the current output rate, is average variable cost increasing, constant, or decreasing? Given that the marginal (last) worker added 10 units and the on the whole average is 25 units, average variable costs must be rising, If AVC is rising, TVC must also be rising Q3: CH 9 (10%) The Largo Publishing House uses 400 printers and 200 printing presses to produce books. A printer’s wage rate is $20, and the price of a printing press is $5,000. The last printer added 8 books to total output, while the last press added 2,500 books to total output. Is the publishing house making the optimal input choice? Why or why not? If not, how should the manager of Largo Publishing House adjust input usage? Printers are $20 each and add 20 books per hour. Therefore, the return on printers is $1 per book. Presses are $5000 and add 1000 books. The press return is $5 per book. In this case, it would appear that it would be more feasible to add more printers and avoid the expensive press cost. This would be the best solution in the short run. The company would have to pay the printer $20 for every hour of work. The press has to be purchased only once, therefore in the long run it is better to purchase the press. The reason is that the press return is $5000 for

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