Chapter 9

#6. We frequently hear the following terms used by businesspersons. What does each mean in economic terminology?

 

A. spreading the overhead.

B. A break-even level of production

C. The efficiency of mass production.

 

#2. Dimex Fabrications Co., a small manufacturer of sheet-metal body parts for a major U.S. automaker, estimates its long-run production function to be

                       Q= -0.015625K3L3 + 10 K2 L2

where Q is the number of body parts produced daily, K is the number of sheet-, metal presses in its manufacturing plant, and L is the number of labor-hours per day of sheet-metal workers employed by Dimex. Dimex is currently operating with eight sheet-metal presses.

a. What is the total product function for Dimex? The average product function? The marginal product function?


b. Managers at Dimex can expect the marginal product of additional workers to fall beyond what level of labor employment?

c. Dimex plan to employ 50 workers. Calculate total product, average product, and marginal product

 

#3. The chief economist for Argus Corporation, a large appliance manufacturer, estimated the firm’s short-run cost function for vacuum cleaners using an average variable cost function of the form

AVC = a + bQ + cQ2

where AVC dollars per vacuum cleaner and Q number of vacuum cleaners produced each month. Total fixed cost each month is $180,000. The following results were obtained:

DEPENDENT VARIABLE: AVC   R-SQUARE F-RATIO P-VALUE ON F

              OBSERVATIONS: 190   0.7360        39.428      0.001

VARIABLE                PARAMETER      STANDARD   T-RATIO   P-VALUE
                                  Estimate               Error


INTERCEPT                 194.93                  54.65             .512         0.0029
  Q                                -0.0305              0.00789          23.866         0.0014
Q2                                 0.0000024        0.00000098     2.449          0.0262

a. Are the parameter estimates a, b, and c statistically significant at the 2 percent level of significance?


b. Do the results indicate that the average variable cost curve is U-shaped? How do you know?


c. If Argus Corporation produces 8,000 vacuum cleaners per month, what is the estimated average variable cost? Marginal cost? Total variable cost? Total cost?


d. Answer part c, assuming that Argus produces 10,000 vacuum cleaners monthly.


e. At what level of output will average variable cost be at a minimum? What is minimum average variable cost?