Microeconomics
11th Edition
ISBN: 9781260507140
Author: David C. Colander
Publisher: McGraw Hill Education
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Chapter 12, Problem 5IP
To determine
Explain whether the draftsman argument is right or not.
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When economist Jacob Viner first developed the envelope relationship, he told his draftsman to make sure that all the marginal cost curves went through both (1) the minimum point of the short-run average cost curve and (2) the point where the short-run average total cost curve was tangent to the long-run average total cost curve. The draftsman told him it couldn’t be done. Viner told him to do it anyhow. Why was the draftsman right?
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:
Is it true or not that the marginal cost C′(x) is equal to the average cost at the critical points of the average cost function? Please elaborate and explain.
Chapter 12 Solutions
Microeconomics
Ch. 12.1 - Prob. 1QCh. 12.1 - Prob. 2QCh. 12.1 - Prob. 3QCh. 12.1 - Prob. 4QCh. 12.1 - Prob. 5QCh. 12.1 - Prob. 6QCh. 12.1 - Prob. 7QCh. 12.1 - Prob. 8QCh. 12.1 - Prob. 9QCh. 12.1 - Prob. 10Q
Ch. 12.A - Prob. 1QECh. 12.A - Prob. 2QECh. 12.A - Prob. 3QECh. 12.A - Prob. 4QECh. 12.A - Prob. 5QECh. 12.A - Prob. 6QECh. 12.A - Prob. 7QECh. 12 - Prob. 1QECh. 12 - Prob. 2QECh. 12 - Prob. 3QECh. 12 - Prob. 4QECh. 12 - Prob. 5QECh. 12 - Prob. 6QECh. 12 - Prob. 7QECh. 12 - Prob. 8QECh. 12 - Prob. 9QECh. 12 - Prob. 10QECh. 12 - Prob. 11QECh. 12 - Prob. 12QECh. 12 - Prob. 13QECh. 12 - Prob. 14QECh. 12 - Prob. 15QECh. 12 - Prob. 16QECh. 12 - Prob. 17QECh. 12 - Prob. 1QAPCh. 12 - Prob. 2QAPCh. 12 - Prob. 3QAPCh. 12 - Prob. 4QAPCh. 12 - Prob. 5QAPCh. 12 - Prob. 1IPCh. 12 - Prob. 2IPCh. 12 - Prob. 3IPCh. 12 - Prob. 4IPCh. 12 - Prob. 5IPCh. 12 - Prob. 6IP
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- is it true that the marginal cost curve intersects the average variable cost curve at the break-even point?arrow_forwardcan you explain how they got M=y^2/2 and L=2y^2 from part b of this questionarrow_forwardA student has just written on an exam that, in the long run, fixed cost will make the average total cost curve slope downward. Why will the professor mark it incorrect? In the long run, fixed cost increases as firms build new plants and purchase new capital. This means that the average total cost curve will eventually slope upward. In the long run, firms have no fixed cost—all costs would be variable. The shape of the long-run average total cost curve is determined by economies of scale. In the long run, fixed cost decreases as costs are spread out over a greater quantity of output. Declining fixed cost accounts for the downward-sloping average total cost curve. In the long run, there are no fixed costs, meaning the average total cost curve shifts down.arrow_forward
- If the marginal cost of production is greater than the average variable cost, what does this tell you about the nature of the average variable costarrow_forwardWhich of the following statements is a reflection of the fact that the average fixed cost falls as output rises? 1) The gap between the average total cost curve and the average variable cost curve becomes smaller as output rises. 2) The gap between the average total cost curve and the average variable cost curve remains the same as output rises. 3) The gap between the average total cost curve and the average variable cost curve becomes bigger as output rises. 4) The average total cost curve intersects the average variable cost curve in the long run.arrow_forwardJane's Juice Bar has the following cost schedules: In the following table, complete the marginal cost, average variable cost, and average total cost columns. (SEE ATTACHMENTS FOR THE REST OF QUESTIONS) Which of the following statements are true according to the previous graph? Check all that apply. The marginal-cost curve is below the average-total-cost curve when output is greater than four and average total cost is rising. The marginal-cost curve lies above the average-variable-cost curve. The marginal-cost curve is below the average-total-cost curve when output is less than four and average total cost is declining.arrow_forward
- Explain why the average variable cost curve and the average total cost curve get closer to each other as output increases.arrow_forwardWhat is a sunk cost? Provide an example of a sunk cost other than one from this book. Why are such costs irrelevant in making decisions about future actions?arrow_forward1arrow_forward
- The most likely explanation for economies of scale isarrow_forwardAn entrepreneur invests $10,000 of her personal savings in her new business venture. Furthermore, she takes out $30,000 in loans. Are the interest payments she makes on her business loans considered an explicit cost or an implicit cost? Explain. She was earning interest income on her savings. Now that she withdrew those funds, she is no longer earning that interest income. Is that an example of an explicit cost or an implicit cost? Explain.arrow_forwardQuestion # 1: Majeda wrote the following answer on her microeconomics examination: “Virtually every production function exhibit diminishing returns to scale because my professor said that all inputs have diminishing marginal productivities. So, when all inputs are doubled, output must be less than double." How would you grade Majeda's answer? Question # 2: Suppose a firm had a production function with linear isoquants, implying that its two inputs were perfect substitutes for each other. What would determine the firm's expansion path in this case? For the opposite case of a fixed-portions production function, what would the firm's expansion path be? Question # 3: Suppose that a firm's production function is q = 30√L. In the short run, where there are fixed costs of $2,200, and labor is the variable input whose cost is $6,300 per units. What is the total cost of producing 20 units of output?arrow_forward
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