MyLab Economics with Pearson eText -- Access Card -- for Principles of Microeconomics
17th Edition
ISBN: 9780134081168
Author: CASE, Karl E.; Fair, Ray C.; Oster, Sharon E.
Publisher: PEARSON
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Chapter 8, Problem 1.2P
To determine
The average fixed cost and
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Assume you have decided to buy an advertisement in the local newspaper to publicize your new pet grooming service. The cost of the ad is $1,000. You have decided to charge $40 for a dog grooming, and your variable costs are $20 for each dog. How many dogs do you have to groom to break even on the cost of the ad? What is your break-even point if you charge $60 per dog?
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Chapter 8 Solutions
MyLab Economics with Pearson eText -- Access Card -- for Principles of Microeconomics
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- Explain why Decreasing cost condition is the best while Increasing Cost Condition is not good.arrow_forwardA firm’s technology (recipe for combining factors of production) has an impact on its costs. Given a firm has a technology Q(L,K) = L0.8K0.2 (Where L represents labour and K represents Capital), which of the following is/are necessarily true? A firm’s technology (recipe for combining factors of production) has an impact on its costs. Given a firm has a technology Q(L,K) = L0.8K0.2 (Where L represents labour and K represents Capital), which of the following is/are necessarily true? Costs are exponentially increasing (by an exponent of 0.6) The elasticity of substitution between the factors is σ=1 The firm will spend equal amounts on the Labour and Capital factors Returns to scale are decreasing Optimum amounts of inputs for a given output is found by the interaction of cost functions and technologyarrow_forwardDouglas Fur is a small manufacturer of fake-fur boots in San Diego. The following table shows the company’s total cost of production at various production quantities. On the following graph, plot Douglas Fur’s average total cost (ATC) curve using the green points (triangle symbol). Next, plot its average variable cost (AVC) curve using the purple points (diamond symbol). Finally, plot its marginal cost (MC) curve using the orange points (square symbol). (Hint: For ATC and AVC, plot the points on the integer; for example, the ATC of producing one pair of boots is $210, so you should start your ATC curve by placing a green point at (1, 210). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $90, so you should start your MC curve by placing an orange square at (0.5, 90).) Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.arrow_forward
- Where average costs of production are lowest when all output is produced by a single firm.arrow_forwardGraph the Average Total Costs, Average Variable Costs, and Marginal Costs on the same graph of the table below.arrow_forwardAn accountant for a car rental company was recently asked to report the firm's costs of producing various levels of output. The accountant knows that the most recent estimate available of the firm's cost function is C(Q) = 100 + 10Q + Q^2, where costs are measured in thousands of dollars and output is measured in thousands of hours rented. a. What is the average fixed cost of producing 2 units of output? b. What is the average variable cost of producing 2 units of output? c. What is the average total cost of producing 2 units of output? d. What is the marginal cost of producing 2 units of output? e. What is the relation between the answers to (a), (b), and (c) above? Is this a general property of average cost curves?arrow_forward
- Label each of the following as sunk cost, opportunity cost, or incremental costs and briefly explain why: (Chapter 2) You are deciding which car to buy. Car A is $24,000 and car B is $32,000. The difference in price is $8,000. What kind of cost does this represent? Answer: Your company invested $300,000 into a study to determine the feasibility of introducing a new product line into the business. The study recommended 2 mutually exclusive feasible alternatives. What kind of cost does the $300K represent? Answer: You have 2 alternatives for a $10,000 investment. Investment A provides a $500 return and investment B provides a $700 return. If you choose Alternative B, what does the $500 return from Alternative A represent? Answer:arrow_forwardThree college students are considering operating a tutoring business in economics. This business would require that they give up their current jobs at the student recreation center, which pays $6,000 per year. A fully equipped facility can be leased at a cost of $8,000 per year. Additional costs are $1,000 a year for insurance and $.50 per person per hour for materials and supplies. Their services would be priced at $10 per hour per person. a. What are fixed costs? b. What are variable costs? c. What is the marginal cost? d. How many student hours would it take to break even ?arrow_forward
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