Assignment #7: Productivity and the Firm
Read Openstax text Ch. 7: Cost and Industry Structure
1. Which of the following are long run decisions? Which are short run decisions? Why are there no fixed costs in the long run?a. the local hardware store hires a part time clerkb. the city’s airport expands and begins to construct another terminalc. an organic farmer increases the quantity of water added to her fieldd. an organic farmer installs an irrigation system and greenhouse complex to increase production and to provide fresh produce year round
2. The information in the table explains the production of socks. Assume that the price per unit of the variable factor of production (L) is $20 and the price
per unit of the fixed factor of production (K) is $5. Add columns to the table and calculate values for: Total Variable Cost (TVC), Total Fixed Cost (TFC), Total Cost (TC), Average Variable Cost (AVC), Average Fixed Cost
(AFC) Average Total Cost (ATC) and Marginal Cost (MC) [See the Hint on Bb]
3. A firm has fixed costs of $100 and variable costs of the following: a. Show AFC, ATC, AVC, and MC in a table.b. Graph the AFC, ATC, AVC, and MC curves.c. Say fixed costs dropped to $50. Which curves shifted? Why?
4. The table below shows the long run average cost of producing knives (cost per knife) at different levels of production: a. Draw the long run average cost curve for knives.b. Shade the regions corresponding to economies of scale, constant returns to scale, and diseconomies of scale.c. What is happening to the cost per knife in each of these regions?
5. Read “Global Grain Demand” from The New York Times and use examples to show how it illustrates the concepts of:a) consumer choiceb) diminishing marginal productivityc) optimization and choiced) increasing costs