Economics Workshop Questions

Economics Workshop

1. Martha’s current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. The orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce.

Is Martha maximizing her total utility from the two beverages? If so, explain how you know. If not, how should she rearrange her spending?

2. Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm's manager?

3. A firm’s total cost function is given by the equation:

TC = 4000 + 5Q + 10Q2.

Using the above cost function, write down the numerical expressions of the following cost concepts.

(i) Total Fixed Cost

(ii) Average Fixed Cost

(iii) Total Variable Cost

(iv) Average Variable Cost

(v) Average Total Cost

(vi) Marginal Cost

4. When demand for a firm's product decreases, the firm can take a number of steps to adjust costs and quantities supplied to the market. Some are listed below. Which actions are short run and which are long run? Explain your reasoning.

a. Layoff 25 percent of the firm's existing employees.

b. Declare bankruptcy and sell all of the firm's plant and equipment.

c. Require management personnel to take a significant cut in pay.

d. Furlough employees for 3 days each month.

e. Move to a smaller production facility.

5. Use the information provided in the table below to answer the following questions:

Output Total Cost Total Fixed Cost Total Variable Cost Average

Fixed Cost Average

Variable Cost Average total Cost Marginal Cost

0 130

1 140

2 160

3 190

4 230

5 280

6 340

7 410

8 510

i) Fill out the remaining columns.

ii) Graph AFC, AVC, ATC, MC

6. In the general textbook treatment, the firm's short run average variable and average total cost curves are U-shaped, while the average...