the marginal cost pet dozen pizzas using
the information on variable cost. What is the relationship between these sets of numbers? Comment.
7. You are thinking about setting up a lemonade stand. The stand itself costs S2CO. The ingredients for each cup of lemonade cost $0.50.
a. What is your fixed cost of doin>; business? What is your variable cost per cup?
b. Construct a table showing your total cost, average total cost, and marginal cost for output levels varying from 0 to 111 gallons- (Hint: There are 16cups in a gallon.) Draw the three cost curves.
8. Your cousin Vinnie owns a painting company with fixed costs of $2M1 and the following schedule for variable costs:
Quantity oi
Calculate average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company?
9. The city government is considering two tax proposals:
• A lump-sum tax of 53CO on each producer of hamburgers.
• A lax of $1 per burger, pasd by producers of hamburgers-
a. Which of the following curves—average fixed cost, average variable cost, average tola) cost, and marginal cost—would shift as a result of the lump-sum tax? Why? Show this in a graph. Label the graph as precisely as possible.
b. Which of ihcsc same four curves would shift as a result of the per-burger tax? Why? Show this in a new graph. Label the graph as precisely as possible.
10. lane's [nice Bar has the following cost schedules:
Quantity Viable Cott Total Colt
1 10 40
7 25 55
3 45 75
4 70 ICO
5 100 130
6 135 165
a. Calculate average variable cost, average total cost, and marginal cost for each quantity.
b. Graph all throe curves. What is the relationship between the marginal-cost curve and the average-total-cost curve? Between the marginal-cost curve and the average-variable-cost curve? Explain.
11. A firm has fixed cost of $100 and average variable cost of S5 x Q, where Q is the number of units produced.
a. Construct a table showing total cost for Q from 0 to 10.
b. Graph the firm's curves for marginal cost and average total cost.
c- How docs marginal cost change with Q? What does this suggest about the firm's production process?
12. Consider the following table of long-run total costs for three different firms;
Fii™ A J 40 S70 $80 SiO $103 $110 $1?3 Film 6 11 21 39 5« 75 «6 119 Firm C 21 34 49 66 8S 106 129
Does each of these firms experience economies of scale or diseconomies of scale?
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