Q8.1 The relevant cost for most managerial decisions is the current cost of an input. The relevant cost for computing income for taxes and stockholder reporting is the historical cost. What advantages or disadvantages do you see in using current costs for tax and stockholder reporting purposes?

Q8.2 What are the relations among historical costs, current costs, and opportunity costs?

Q8.3 What is the difference between marginal and incremental cost?

Q8.4 What is a sunk cost, and how is it related to a decision problem?

Q8.5 What is the relation between production functions and cost functions? Be sure to include in your discussion the effect of conditions in input factor markets.

Q8.6 Explain why eQ > 1 indicates increasing returns to scale, where eC < 1 indicates economies of scale. (See Chapter 7 for the definition of output elasticity.)

Q8.7 The president of a small firm has been complaining to his controller about rising labor and material costs. However, the controller notes that average costs have not increased during the past year. Is this possible?

Q8.8 Given the short-run total cost curve in Figure 8.1(b), explain why (a) Qj is the minimum of the MC curve, (b) Q2 is the minimum of the AVC curve, (c) Q3 is the minimum of the ATC curve, and (d) the MC curve cuts the AVC and ATC curves at their minimum points.

Q8.9 Will firms in industries in which high levels of output are necessary for minimum efficient scale tend to have substantial degrees of operating leverage?

Q8.10 Do operating strategies of average cost minimization and profit maximization always lead to identical levels of output?

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