# Economics Homework Six Answers - Student One

Seth P.

1.Fixed costs can be easily identified by seeing what the total costs are when output is zero. An example of a variable cost is employees.

Superb.

2.His plan would fail because there is decreasing returns of scale in the restaurant, because more waitresses would result in more wasted time.

Right.

3.I own a widgets factory and one of my machines breaks. It costs \$1000 to fix it, but there is no guarantee that it won't break again soon. It costs \$2000 to buy a new one, but the guarantee is at least two years. A “short run” cost would be just fixing it. A “long run” cost would be buying the new one.

Terrific. May use as a model.

4.

Free pass on one question.

5.The long run for college is first of all college costs a lot to go and you have to spend a lot of time studying and writing. But because of your better education you will be able to get good jobs that pay a lot and maybe not have a lot of money during college, but after you get out and get a good job you would have lots of money. As opposed to the short run where you skip college. You skipped paying all that money for college. You skipped all that studying and reading, but because of your lesser education you can't get as good of a job. So while the OK job you have was good for you then, eventually it won't be good enough and you will wish you had stayed in college.

Terrific.

6.The fixed cost is one million dollars. The average variable cost is \$20,000 because \$1,000,000 divided by 50 is 20,000. The average total cost is \$2,000,000 divided by 50 = \$40,000. The marginal cost is \$1,000,000 + 18,000 divided by 51 = \$19,961 after it costs \$18,000 to make a 51st car.

Almost right. Everything was correct until the marginal cost answer. It is simply \$18,000 because that is what it cost to make the 51st car. (Minus 1).

7.The increase in license fee will increase marginal cost, average variable cost and average total cost.

Nope. It increases (c) only. It increases only the fixed costs, when output (number of riders) is zero. (Minus 2).

8.Instead of earning \$8 an hour, you watch TV for an hour. Your accounting loss is \$8. Your economic loss is \$8 + the time you spent watching TV + electricity for the TV.

Nope. Accounting loss is zero. Economic loss is the \$8. (Minus 2).

9.The firm will hire more employees to produce more output until the point where the value of its marginal product of labor equals its marginal return.

"Marginal return" is not an economic term. See model answers. (Minus 2).

10.If inflation is 10% per year for three years, but one particular good keeps the same price during those three years, then its opportunity cost and real price actually decreased because there is only one thing you can spend that money on because everything else went up.

I think you have the right idea here but the wording is not clear. (Minus 1).

11.The long run average costs would be less because you may have to pay more than the short run at first, but eventually the long run would pay for itself and then some. Because long run is more efficient.

Excellent.

12. The firm should (b) use materials that have increasing returns to scale.

Close, but not quite. See model answers. (Minus 1).

13.There are reasons why charity lasts longer than business. For example, charity focuses on helping people while business focuses on making money.

Ok, but vague. Also, the instructions were to answer 4 out of 5 honors. (not graded)

14.I agree with this statement because a marriage between a man and a woman is like two parts of a whole coming together.

Good. (Plus 2).
101/110, plus 2 for a total of 103/110. Some good answers, but also check model answers when after Sunday.--Andy Schlafly 19:09, 24 October 2009 (EDT)