Check Your Understanding

1
12
Behind the Supply Curve Inputs and Costs
gtgt
Krugman/Wells
CHECK YOUR UNDERSTANDING
2
Check Your Understanding 12-1 Question 1

• Bernies ice-making company produces ice cubes
  using a 10-ton machine and electricity. The
  quantity of output, measured in terms of pounds
  of ice, is given in this table

3
1ai) Bernies ice-making company produces ice
cubes using a 10-ton machine and electricity. The
10-ton machine is a _____ input.

1. fixed
2. variable

4
1aii) Bernies ice-making company produces ice
cubes using a 10-ton machine and electricity. The
electricity is a _____ input.

1. fixed
2. variable

5
1bi) Calculate the marginal product of the third
unit of the variable input.

1. 1000
2. 900
3. 800
4. 600

6
1bii) The calculation of all of the marginal
products reveals that there are _______ returns
to the input.

1. increasing
2. diminishing

7
1ci) Bernies ice-making company produces ice
cubes using a 10-ton machine and electricity.
Suppose a 50 increase in the size of the fixed
input increases output by 100 for any given
amount of the variable input. What is the fixed
input now?

1. the 10 ton machine
2. the 15 ton machine
3. the 20 ton machine
4. 6 kilowatts of electricity

8
1cii) Suppose a 50 increase in the size of the
fixed input increases output by 100 for any
given amount of the variable input. Given the
original production function, the quantity of ice
that can be produced using 2 units of the
variable input is _____.

1. 900
2. 1800
3. 2700
4. 3600

9
Check Your Understanding 12-2 Question 1

• Suppose that the fixed cost of making 10 game
  day t-shirts is 25, and the variable cost is 50.

10
1) Suppose that the fixed cost of making 10 game
day t-shirts is 25, and the variable cost is
50. Calculate average variable cost.

1. 75
2. 25
3. 7.50
4. 5.00

11
1) Suppose that the fixed cost of making 10 game
day t-shirts is 25, and the variable cost is
50. Calculate average total cost.

1. 75
2. 25
3. 7.50
4. 5.00

12
1) Suppose that the fixed cost of making 10 game
day t-shirts is 25, and the variable cost is
50. Calculate average fixed cost.

1. 25
2. 2.50
3. 7.50
4. 5.00

13
Check Your Understanding 12-2 Question 1

• Alicias Apple Pies is a roadside business.
  Alicia must pay 9 in rent each day. In addition,
  it costs her 1.00 to produce the first pie of
  the day, and each subsequent pie costs 50 more
  to produce than the one before. For example, the
  second pie costs 1.00 Ч 1.5 1.50 to produce,
  and so on.

14
1ai) Alicia must pay 9 in rent each day. In
addition, it costs her 1.00 to produce the first
pie of the day, and each subsequent pie costs 50
more to produce than the one before. For example,
the second pie costs 1.00 Ч 1.5 1.50 to
produce, and so on.Calculate Alicias marginal
cost of the 3rd pie.

1. 1.00
2. 1.25
3. 2.25
4. 3.00

15
1aii) Calculate Alicias variable cost of
producing 3 pies (Hint The variable cost of two
pies is just the marginal cost of the first, plus
the marginal cost of the second pie, and so on.)

1. 1.58
2. 3.25
3. 4.10
4. 4.75

16
1aiii) Alicia must pay 9 in rent each day. In
addition, it costs her 1.00 to produce the first
pie of the day, and each subsequent pie costs 50
more to produce than the one before. Calculate
Alicias average fixed cost of producing 3 pies.

1. 1.00
2. 1.25
3. 2.25
4. 3.00

17
1aiv) Calculate Alicias average variable cost of
producing 3 pies.

1. 1.58
2. 3.25
3. 4.10
4. 4.75

18
1av) Calculate Alicias average total cost of
producing 3 pies.

1. 1.58
2. 3.25
3. 4.10
4. 4.58

19
1bi) The spreading effect dominates the range of
output from _____ .

1. 0 to 3
2. 1 to 4
3. 2 to 5
4. 5 to 6

4
20
1bii) The diminishing returns effect dominates
the range of output from _____ .

1. 0 to 3
2. 1 to 4
3. 2 to 5
4. 5 to 6

21
1ci) What is Alicias minimum cost output?

1. 1 pie
2. 2 pies
3. 4 pies
4. 5 pies

22
1cii) Making one more pie raises average total
cost when output is greater than 4 pies because
the marginal cost of the 5th pie is less than the
average total cost of the first four pies.

1. True
2. False

23
Check Your Understanding 12-3 Question 1
The table below shows three combinations of fixed
and average variables cost. Use it to answer the
following questions.
24
1ai) For Choice 1 what is the average total cost
of producing 12,000 units?

1. 1.80
2. 1.67
3. 1.00

25
1aii) Which choice leads to the lowest average
total cost of producing 12,000 units?

1. Choice 1
2. Choice 2
3. Choice 3

26
1aiii) Which choice leads to the lowest average
total cost of producing 22,000 units?

1. Choice 1
2. Choice 2
3. Choice 3

27
1aiv) Which choice leads to the lowest average
total cost of producing 30,000 units?

1. Choice 1
2. Choice 2
3. Choice 3

28
1bi) Suppose that a firm has the choices 1, 2,
and 3. Historically they have produced 12,000
units. Suddenly, demand increases sharply
leading to a permanent change in production for
the firm from 12,000 units to 22,000 units. In
the short run we expect that the firm will
produce using ______.

1. Choice 1
2. Choice 2
3. Choice 3

29
1bii) Suppose that a firm has the choices 1, 2,
and 3. Historically they have produced 12,000
units. Suddenly, demand increases sharply
leading to a permanent change in production for
the firm from 12,000 units to 22,000 units. The
average cost of production in the short run is
_______.

1. 1.67
2. 1.75
3. 1.36
4. 1.30

30
1biii) Suppose that a firm has the choices 1, 2,
and 3. Historically they have produced 12,000
units. Suddenly, demand increases sharply
leading to a permanent change in production for
the firm from 12,000 units to 22,000 units. In
the long run we expect that the firm will produce
using ______.

1. Choice 1
2. Choice 2
3. Choice 3

31
1biv) Suppose that a firm has the choices 1, 2,
and 3. Historically they have produced 12,000
units. Suddenly, demand increases sharply
leading to a permanent change in production for
the firm from 12,000 units to 22,000 units. The
average cost of production in the long run is
_______.

• 1.67
• 1.75
• 1.36
• 1.30

32
Check Your Understanding 12-3 Question 2
For the following cases, choose the kind of scale
effects you would expect.
33
2a) A telemarketing firm in which employees make
sales calls using computers and telephones.

1. diseconomies of scale
2. economies of scale
3. constant returns to scale

34
2b) An interior design firm in which design
projects are based on the expertise of the firms
owner.

1. diseconomies of scale
2. economies of scale
3. constant returns to scale

35
2c) A diamond-mining company

1. diseconomies of scale
2. economies of scale
3. constant returns to scale