经济学基础Chap005

Chapter 05 - Supply DecisionsANSWERS TO QUESTIONS FOR DISCUSSION AND PROBLEMS QUESTIONS FOR DISCUSSION l. Is your school currently producing at capacity (i.e., teaching as many students as possible)? What considerations might inhibit full capacity utilization? LO: 1AACSB: AnalyticBT: CreateThere may be empty seats in your classroom that indicate unused capacity. Although it would be impractical to offer classes around the clock, capacity utilization has increased as many schools have added early morning, night, and weekend classes to traditional Monday through Friday daytime classes. It is difficult to enroll the exact number of students to fill up each classroom for every course and even if it were possible, some students would still drop out of specific classes or even the school. Due to the nature of our educational system, these students cannot be replaced during the middle of a semester. 2. What are the production costs of your economics class? What are the fixed costs? The variable costs? What is the marginal cost of enrolling more students? LO: 3AACSB: AnalyticBT: AnalyzeThe fixed costs are the costs of providing the classroom and its equipment, some level of utilities, and the prorated share of the universitys infrastructure attributed to this class. The variable costs include the cost of the instructor, materials (chalk or markers, handouts), and some additional utilities. The marginal cost of enrolling one more student is nearly zero as long as there is a seat available in the classroom.3. Suppose you set up a lawn-mowing service and recruited friends to help you. Would the law of diminishing returns apply? Explain. LO: 2AACSB: AnalyticBT: AnalyzeIn the short run, yes. As more and more friends helped, there would be capital constraints such as a limited number of lawn mowers, rakes, etc. Sharing the tools reduces each workers productivity. Also, they might tend to get in each others way and bicker and fuss. The result would be to decrease the output of each added worker over that of the previous worker. 4. What are the fixed costs of (a) a pizza shop, (b) an Internet Service Provider, (c) a corn farm? Who needs the highest sales volume to earn a profit?LO: 3AACSB: AnalyticBT: Create(a)The fixed costs of a pizza shop include rent on the building (even if they own the building there is an opportunity cost), insurance, some minimal level of utilities (for example, for security and signage), ovens and other equipment, delivery cars, etc.(b)The fixed costs of an Internet Service Provider include rent on the building, the computer servers, the software necessary to provide access to the Internet, and a dedicated telephone line.(c)The fixed costs of a corn farm include the land, buildings, tractors, combines, and other equipment.Whichever business has the highest fixed costs needs the highest sales volume to earn a profit. 5. Owner-operators of small gas stations rarely pay themselves an hourly wage. Does this practice reduce the economic cost of dispensing gasoline? LO: 5AACSB: AnalyticBT: CreateNo, this practice does not reduce the economic cost of dispensing gasoline. It can change the accounting cost, but not the economic cost. Economists focus on opportunity costs; they include an allowance for how much the owner could have earned in an alternative job.6. In the News Wire on page 99, why did MPP fall to zero? What was the opportunity cost of those surplus workers?LO: 2AACSB: AnalyticBT: EvaluateAs more workers are hired in a given plant, MPP declines. If too many are hired, MPP may even fall to zero, or less. In this case, the Headline tells us that there were surplus, i.e., too many, workers. The opportunity cost to the state of the surplus workers was what they could have done elsewhere had they not hired them. Or, this could include purchasing equipment so that the productivity of the work force would increase. 7. What role do expectations play in the production and investment decisions described in the News Wire on page 107?LO: 3AACSB: AnalyticBT: EvaluateAccording to the News Wire, Nissan is expanding the production at its Barcelona plant by hiring an additional 1,000 workers. Nissan plans to create a new compact car and increase output of a pickup truck already being manufactured there. This production decision a focus on the short-run use of existing facilities is based on the expectation that consumers will be willing and able to purchase these vehicles.Fiat, on the other hand, is looking for a whole new location for production. They are considering opening a plant to manufacture the brands sport-utility vehicles in Russia in an attempt to expand Jeeps global reach. This investment decision a focus on the long-run acquisition of productive facilities is an attempt to expand Jeeps global reach. This decision is based on the expectation (as with the Nissan example) that consumers will be willing and able to purchase these vehicles. 8. Why does marginal physical product decline at a fast-food outlet (e.g. McDonalds) when more employees are hired? What are the fixed input constraints that limit worker productivity?LO: 2AACSB: AnalyticBT: EvaluateThe law of diminishing returns states that the marginal physical product of labor declines as more of it is employed with a given quantity of other fixed inputs. For example, if McDonalds has one ice cream machine and 6 employees, one of which is a cook, another that is a cashier, and the other four prepare the side dishes including the ice cream, space will be tight and still only one ice cream can be prepared at one time. This “crowding” reduces marginal physical product. Hiring another worker might not increase ice cream production.Fixed input constraints at an establishment such as McDonalds would include food dispensers such as ice cream machines, cola dispensers, and deep fat fryers. A limited number of grills, microwaves, and cash registers would also be considered limiting inputs. Finally, the counter space and space behind the counter also has the potential to place considerable constraints on worker productivity.9. Why doesnt maximum output generate maximum profits? LO: 3AACSB: AnalyticBT: EvaluatePeople who supply goods and services want to make a profit from their efforts. In economic terms, profit is the distance between total revenues and total economic costs: Profit = total revenue - total cost. For example, if the total revenue at a jeans factory was $300 per day and total cost is $245 per day, the profit would be $55 per day. Now, if at maximum output, the jean factorys total revenue increased by $30, but the total cost increased by $60 in order to create maximum output then, $330 - $305 = $25 of profit. Maximum output does not generate maximum profits, in the case above profit decreased with an increase in output. Generally, costs increase as output increases. Indeed, producing more may in fact lead to losses rather than any profit at all.10. POLICY PERSPECTIVES If capital investment ceased, what would happen over time to worker productivity and living standards? LO: 1AACSB: AnalyticBT: EvaluateThe U.S. labor force continues to grow by more than a million workers each year. Capital investment stimulates each and every workers productivity. If capital investments dont keep pace or, even worse, they cease, these added workers would strain production facilities. The law of diminishing marginal product (decreased worker productivity) would push wages lower and reduce living standards. PROBLEMS1. (a)What is the marginal physical product of each successive worker in Figure 5.1?For which worker is marginal physical product(b) First diminishing?(c) Zero?Answers: (a) worker 1 2345678 MPP1519104210-4(b) worker number 3(c) worker number 7Explanation: Labor input(worker/day)01 2345678Output(jeans/day)01534444850515147MPP01519104210-4 (a) Marginal physical product (MPP) is the change in total output associated with one additional unit of input. The MPP for the first worker is 15 (= 15 0). The MPP for the second worker is 19 (= 34 15), and so on.(b) The relative scarcity of other inputs (capital and land) constrains the marginal physical product of labor and eventually causes it to diminish. In this case the MPP first diminished with the third worker; the MPP of the third worker is in fact smaller than the MPP of the second worker.(c) According to the table developed above, the MPP of the seventh worker is zero.LO 05-02Topic: Capacity Constraints: The Production FunctionAACSB: AnalyticBlooms: Level 3 Apply2. (a) Compute average fixed costs and average variable costs in Figure 5.3 for all rates of output. At what rate of output(b) are average fixed costs the lowest?(c) are average variable costs the lowest?(d) is average total cost the lowest?Answers: (a) (b) Rate of output = 51(c) Rate of output = 20(d) Rate of output = 40Explanation: (a) Average fixed cost is fixed cost divided by output. For example at point I average fixed cost is $12 (= $120/10 pairs), at point J average fixed cost is $8.00 (= $120/15 pairs), and so on. Average variable cost is determined in the same way; variable cost divided by output. In this case, at point I average variable cost is $8.50 (= $85/10 pair), at point J average variable cost is $8.33 (= $125/15 pairs), and so on.(b) According to the table, average fixed costs are lowest at point O where the rate of output is 51 pairs and average fixed costs of $2.35.(c) Average variable costs are lowest at point K where the rate of output is 20 pairs and average variable cost is $7.50.(d) Average total costs are lowest at point M where the rate of output is 40 pairs and average total cost is $11.75.LO 05-03Topic: Costs of ProductionAACSB: AnalyticBlooms: Level 3 Apply3. (a) Complete the following table. Rate ofTotal CostMarginal CostAverageOutputTotal Cost0$130-1$140_2$160_3$190_4$240_5$310_(b) Use the information to plot the marginal cost and average total cost curves on the same graph.(c) What output has the lowest per-unit cost?(d) What is the value of fixed costs?Answers:(a) Rate ofTotal CostMarginal CostAverageOutputTotal Cost0$130-1$140$10$1402$160$20$803$190$30$634$240$50$605$310$70$62(b) (c) Rate of Output = 4(d) Fixed Costs = $130Explanation: (a) Marginal Cost is the increase in total cost associated with a one-unit increase in production. The first unit of output has a marginal cost of $10 (= $140 - $130), the second unit has a marginal cost of $20 (= $160 - $140), and so on. Average total cost (ATC) is total cost divided by the quantity produced. In this case, ATC for the first unit is $10 (= $140/1), ATC for the second unit is $80 (= $160/2), and so on.(b) Marginal cost and average total cost are plotted with “costs” on the vertical axis and “rate of output” on the horizontal axis. One point along the marginal cost curve is at 1 unit with marginal costs of $10. A second point along marginal cost is 2 units and $20 marginal costs. Average total cost is plotted in the same way. One point along the average total cost curve is at 1 unit with average total costs of $140. A second point along the average total cost curve is 2 units and $80 average total costs. (c) ATC is at a minimum at 4 units of output and a per-unit cost of $60.00.(d) Fixed costs are the costs of production that do not change when the rate of output is altered, e.g., the cost of basic plant and equipment. Fixed costs are the costs that exist when output is zero, in this instance, $130.LO 05-03Topic: Costs of ProductionAACSB: AnalyticBlooms: Level 4 Analyze4. Suppose the mythical Tight Jeans Corporation leased a second sewing machine, giving it the following production function:Number ofworkers012345678Quantity ofoutput 01036566874767674(a) Graph the production function.(b) On a separate graph, illustrate marginal physical product.At what level of employment does(c) The law of diminishing returns become apparent?(d) MPP hit zero?(e) MPP become negative?Answers:(a) (b) (c) worker number 4(d) worker number 7(e) worker number 8Explanation:Number ofworkers012345678Quantity ofoutput 01036566874767674MPP-10162012620-2(a) The production function is plotted with “quantity of output” on the vertical axis and “number of workers” on the horizontal axis. One point along the production function is 10 pairs of jeans and 1 worker (10, 1). A second point along the function is 36 pairs of jeans and 2 workers (36, 2). The rest of the production function is plotted in the same manner.(b) The marginal physical product curve is plotted with “marginal physical product” on the vertical axis and “number of workers” on the horizontal axis. One point along the MPP curve is 10 pairs of jeans and 1 worker (10, 1). A second point along this curve is 16 pairs of jeans and 2 workers (16, 2).(c) The law of diminishing returns states that the marginal physical product (MPP) of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs. According to the table, the MPP declines with the fourth worker. An MPP of 12 for the fourth worker is less than an MPP of 20 for the third worker.(d) According to the table provided, MPP is zero for the seventh worker.(e) The MPP for the eighth worker is -2.LO 05-01Topic: Capacity Constraints: The Production FunctionAACSB: AnalyticBlooms: Level 4 Analyze5. Suppose the mythical Tight Jeans Corporation leased a second sewing machine, giving it the following production function:Number ofworkers012345678Quantity ofoutput 01036566874767674Using the data above and a price of $20 per pair of jeans; compute the value of the MPP (Price x MPP) of(a) The third worker.(b) The seventh worker.Answers:(a) $400(b) $0Explanation:Number ofworkers012345678Quantity ofoutput 01036566874767674MPP-10162012620-2(a) The value of the MPP is price times the MPP. In this instance, the MPP for the third worker is 20 and the price per pair of jeans is also $20, yielding a value of $400.(b) The MPP for the seventh worker is zero which yields a value of $0 (= 0 x $20).LO 05-03Topic: Costs of ProductionAACSB: AnalyticBlooms: Level 3 Apply6. Using Figure 5.3 as a guide, compute total profits at a price of $15 per pair of jeans and output of (a) 40 pairs, (b) 50 pairs. Answers:(a) $130(b) $80Explanation: (a) Total profit is equal to total revenue total cost. In this case total revenue is equal to $600 (= $15 per unit x 40 units) and total cost is $470. Thus, total profit is $130.(b) With an output of 50 units, total revenue is $750 (= $15 per unit x 50 units) and total cost is $670. Total profit is therefore $80.LO 05-03Topic: Costs of ProductionAACSB: AnalyticBlooms: Level 4 Analyze7. Suppose a company incurs the