Calculating Costs and Revenue
Calculating Costs and Revenue
Instructions:
1. From the firm’s perspective, is an accounting profit of zero a good result, a bad result, or merely a satisfactory result? Why? Is an economic profit of zero a good result, a bad result, or merely a satisfactory result? Why?
2. What is the law of diminishing marginal product? What causes it?
3. A firm’s total product of labor curve is represented by the following data: 1 worker can produce 4 units of output; 2 workers, 10 units; 3 workers, 17 units; 4 workers, 25 units; 5 workers, 30 units; 6 workers, 35 units; 7 workers, 38 units; 8 workers, 39 units; and 9 workers, 38 units. What is the marginal product of the seventh worker? When does the law of diminishing marginal product set in? Under these circumstances would you ever choose to employ nine workers?
4. Explain why some costs are considered to be variable and some fixed. How does time enter into the definition?
5. Complete the following table describing the short-run daily costs of the Kangaroo Backpack Company.
Total Product (Backpacks) Total Fixed Cost Total Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
0 0 — — —
1 30
2 50
3 60
4 64 159
5 90
6 150
7 196
8 240
6. A one-day ticket to Sea World costs $37, but a two-day pass costs $42. What is the average cost per day for a one-day pass? For a two-day pass? What is the marginal cost of a second day at Sea World? Why might Sea World charge such a price for a second day’s entrance to the park?
7. How short is the short-run production period?
8. Explain the cost advantage of a firm operating at constant returns to scale.
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