Economics Chapter 11: Supply Curve and Costs

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Questions and Answers

What is Babel's production function?

(0, 0), (1, 4), (2, 7), (3, 9), (4, 10)

What is Babel's marginal product of labor?

(1, 4), (2, 3), (3, 2), (4, 1)

What is Earl's production function?

(0, 0), (1, 6), (2, 15), (3, 24), (4, 27), (5, 30), (6, 30)

What is the total cost function for Earl?

(0, 40), (6, 120), (15, 200), (24, 280), (27, 360), (30, 440), (30, 520) Signup and view all the answers

What is Ralph's fixed cost?

$800 Signup and view all the answers

How many workers does Ralph hire at a quantity of 3000 chickens?

6 Signup and view all the answers

Why does total cost increase faster as output increases?

There are diminishing returns to labor. Signup and view all the answers

Everything Looks Like a Nail's postage and packaging costs are __________.

variable cost Signup and view all the answers

The lease on the building for Everything Looks Like a Nail is __________.

fixed cost Signup and view all the answers

A firm's __________ are costs that increase as quantity produced increases.

variable costs Signup and view all the answers

A firm's __________ are incurred even if there is no output.

fixed costs Signup and view all the answers

What is the definition of marginal cost?

ΔTC/ΔQ Signup and view all the answers

What does the average total cost curve illustrate?

TC/Q Signup and view all the answers

All costs are either fixed or variable.

True Signup and view all the answers

Average fixed cost is always higher than average variable cost.

False Signup and view all the answers

Match the statements with their respective cost types.

Total Cost formula TC = FC + VC = Average (total) cost Total Cost divided by quantity TC/Q = Average (total) cost Change in total cost divided by change in output ΔTC/ΔQ = Marginal cost Costs that change with output = Variable cost Costs that do not change with output = Fixed cost Signup and view all the answers

Economies of scale begin at and end at .

A, C Signup and view all the answers

Diseconomies of scale begin at and end at .

D, F Signup and view all the answers

Study Notes

Babel's Production Function

Babel's production function indicates the relationship between the quantity of labor (workers) and the output of bricks laid.
Key data points:
- 0 workers produce 0 bricks
- 1 worker produces 4 bricks
- 2 workers produce 7 bricks
- 3 workers produce 9 bricks
- 4 workers produce 10 bricks
Marginal product of labor decreases as more workers are hired:
- From 1 to 2 workers: 4 additional bricks
- From 2 to 3 workers: 3 additional bricks
- From 3 to 4 workers: 1 additional brick

Earl's Food Trailer Business

Earl's production function details the output of cupcakes based on the number of workers hired.
Key data points:
- 0 workers produce 0 cupcakes
- 1 worker produces 6 dozens
- 2 workers produce 15 dozens
- 3 workers produce 24 dozens
- 4 workers produce 27 dozens
- 5 workers produce 30 dozens (maximum)
Total cost is influenced by two factors:
- Fixed cost of parking ($40 daily)
- Variable cost of labor ($80 per worker per day)

Ralph's Chicken Processing Plant

Ralph's total cost function correlates to the output of chickens processed.
Fixed cost is determined to be $800.
At a production quantity of 3000 chickens, 6 workers are employed, calculated as:
- Total Cost = Fixed Cost + Variable Cost
- $1400 = $800 + $100 × number of workers
Total cost increases more rapidly as output rises due to diminishing returns to labor.

Costs of Manufacturing at Everything Looks Like a Nail, Inc.

Fixed Costs:
- Lease on the building
- Industrial equipment costs
- Interest on current debt
- Liability insurance costs
- Annual salaries of top management
Variable Costs:
- Postage and packaging costs
- Cost of wood used in manufacturing
- Cost of metal used in manufacturing

Understanding Costs

Variable costs rise with increased production, illustrating diminishing marginal returns.
Fixed costs remain constant regardless of output, not changing with production levels.

Cost Classifications

Marginal cost defined as the change in total cost per change in output (ΔTC/ΔQ).
Average variable cost calculated as total variable cost divided by quantity (VC/Q).
Average total cost is derived from total cost divided by quantity produced (TC/Q).

Short-Run Cost Curves

Assessing cost curves:
- Graph A is invalid
- Graph B is valid
- Graph C is invalid
- Graph D is invalid
- Graph E is invalid
- Graph F is valid

True/False Cost Statements

Costs can be classified as fixed or variable.
Average fixed cost decreases over time, whereas average variable cost can fluctuate.
Average total cost (ATC) always exceeds average variable cost (AVC) in the short run.

Cost Interactions in Firm Dynamics

Long-run average total cost (LRATC) curve showcases economies of scale, constant returns to scale, and diseconomies of scale at different production levels.
Economies of scale occur up to a certain output level, followed by a phase of constant returns and eventually diseconomies.

Long Run vs. Short Run

The long run allows for all inputs to be adjusted, contrasting the short run's fixed input limitations.
Key insights on cost dynamics guide firms in optimizing production strategies and resource allocations.

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Description

Explore the concepts of production functions and marginal product of labor through Babel's architectural project. Use the given data to graph the production function and analyze labor's impact on output. This quiz will deepen your understanding of inputs and costs in economics.