Q5.      What distinguishes a firm’s short-run period from its long-run period?

Q7.      What is the difference between fixed cost and variable cost? Does each type of cost affect short-run marginal cost? If yes, explain how each affects marginal cost. If no, explain why each does or does not affect marginal cost.

Q8.      Explain why the marginal cost of production must increase if the marginal product of the variable resource is decreasing.

Q10.    Identify each of the curves in the following graph.

Q11.    Explain why the marginal cost curve must intersect the average total cost curve and the average variable cost curve at their minimum points. Why do the average total cost and average variable cost curves get closer to one another as output increase?

Q12.    In Exhibit 7 in this chapter, the output level where average total cost is at a minimum is greater than the output level where average variable cost is at a minimum. Why?         

Q14.    Explain the shape of the long-run average cost curve. What does “minimum efficient scale” mea

P19.     Complete the following table, where L is units of labor Q is units of output, and MP is the marginal product of labor.

1. At what level of labor input do the marginal returns to labor begin to diminish?
2. What is the average variable cost when Q = 24?
3. What is this firm’s fixed cost?
4. What is the wage rate per day?

P20.     Assume that labor and capital are the only inputs used by a firm. Capital is fixed at 5 units, which cost $100 each. Workers can be hired for $200 each. Complete the following table to show average variable cost (AVC), average total cost (ATC), and marginal cost (MC).

P21.     Suppose the firm has only three possible scales of production as shown below:

1. Which scale of production is most efficient when Q= 65?
2. Which scale of production is most efficient when Q =75?
3. Trace out the long-run average cost curve on the diagram.

Chapter Appendix  ‘Production and Cost in the Firm’ - Extra Credit

P1.       Suppose that a firm’s cost per unit of labor is $100 per day and its cost per unit of capital is $400 per day.

1. Draw the isocost line for a total cost per day of $2,000. Label the axis.
2. If the firm is producing efficiently, what is the marginal rate of technical substitution between labor and capital?
3. Demonstrate your answer to part (b) using isocost lines and isoquant curves.

34a.

Faz, Inc., manufactures and sells two products: Product X0 and Product W7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

The direct labor rate is $30.60 per DLH. The direct materials cost per unit is $155.50 for Product X0 and $137 for Product W7.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

The overhead applied to each unit of Product X0 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $81.79 per unit

• $257.82 per unit

• $248.81 per unit

• $314.22 per unit

34b.

Faz, Inc., manufactures and sells two products: Product X0 and Product W7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

The direct labor rate is $33.60 per DLH. The direct materials cost per unit is $158.50 for Product X0 and $140 for Product W7.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Which of the following statements concerning the unit product cost of Product W7 is true? (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $166.64.

• The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $50.55.

• The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $50.55.

• The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $166.64.

Coronado, Inc. manufactures ergonomically designed computer furniture. Coronado uses a job order costing system. On November 30, the Work in Process Inventory consisted of the following jobs:

On November 30, Coronado’s Raw Materials Inventory account totaled $686,000, and its Finished Goods Inventory totaled $3,476,400. Coronado applies manufacturing overhead on the basis of machine hours. The company’s manufacturing overhead budget for the year totaled $4,500,000, and the company planned to use 900,000 machine hours during the year. Through the first eleven months of the year, the company used a total of 830,000 machine hours, total manufacturing overhead amounted to $4,274,500, and Cost of Goods Sold was $8,750,250. For the pursposes of this problem, ignore year-end disposition of over / under applied overhead.

Coronado purchased $638,000 in raw materials in December and incurred the following costs for jobs in process that month:

The following jobs were completed in December and transferred to the Finished Goods Inventory:

Bonita, Inc. manufactures ergonomically designed computer furniture. Bonita uses a job order costing system. On November 30, the Work in Process Inventory consisted of the following jobs:

On November 30, Bonita’s Raw Materials Inventory account totaled $676,000, and its Finished Goods Inventory totaled $3,456,400. Bonita applies manufacturing overhead on the basis of machine hours. The company’s manufacturing overhead budget for the year totaled $4,550,000, and the company planned to use 910,000 machine hours during the year. Through the first eleven months of the year, the company used a total of 840,000 machine hours, total manufacturing overhead amounted to $4,284,500, and Cost of Goods Sold was $8,760,250. For the pursposes of this problem, ignore year-end disposition of over / under applied overhead.

Bonita purchased $638,000 in raw materials in December and incurred the following costs for jobs in process that month:

The following jobs were completed in December and transferred to the Finished Goods Inventory:

Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, continuously moving conveyor belt. A car is washed as the conveyor belt carries it from the start station to the finish station. After the car moves off the conveyor belt, workers dry it and clean and vacuum the inside. Workers are managed by a single supervisor.

Lorenzo's accountant wants to estimate total costs in October, when 11,650 cars are expected to be washed. She uses two different methods to estimate total October costs, account analysis and high-low, with number of cars washed as the independent variable for both methods.

For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in February, when 9,600 cars were washed. The following are February total costs and her fixed cost estimates:

For the high-low method, she developed cost function parameter estimates by using the actual costs in July and August, when 8,700 and 11,900 cars were washed, respectively. The following are total costs for those two months:

REQUIRED [ROUND PER-UNIT COSTS TO THE NEAREST CENT AND TOTAL COSTS TO THE NEAREST DOLLAR.]

Part A
1. Using account analysis, what is the accountant's estimate of total fixed costs for October?    

2. Using account analysis, what is the accountant's estimate of variable costs per unit for October?   

Part B
1. Using the high-low method, what is the accountant's estimate of total fixed costs for October?    

2. Using the high-low method, what is the accountant's estimate of total variable costs for October?

Question #4

A perfectly competitive firm is currently producing 10 units of output. Its current total
cost is $85 and its cost curves have the usual shapes. If the firm increased output to 12
units, total cost would rise to $87. The firm’s fixed cost is $15. Is Q = 10 the short-run profit-maximizing level of output for this firm? Why or why not? Show your work and explain clearly your reasoning. If you just show an answer with no work, you will not receive full credit.

A certain competitive firm sells its output for $10 per unit. The 200th unit of output that the firm produces has a marginal cost of $11. Which of the following is not necessarily true?

Select one: a. Production of the 200th unit of output increases the firm's total revenue by $10.

b. Production of the 200th unit of output increases the firm's variable cost by $11.

c. Production of the 200th unit of output increases the firm's total cost by $11.

d. Production of the 200th unit of output increases the firm's average variable cost.

Suppose China wishes to reduce the amount of air pollution generated by electrical plants. The marginal benefit of electricity is P = 464, 000 − 200Q and the producers’ marginal cost is P = 32, 000 + 70Q. The air pollution presents a negative externality and the marginal external cost of each unit is P = 75.6Q.

1. In the market equilibrium, what is the total cost of the pollution externality?

2. In the socially optimal outcome, what is the total cost of the pollution externality?

3. Is producer surplus higher at the market equilibrium or at the socially optimal outcome?

Edited****There is not a case study. This is the question in the text.*********

This question is in reference to the healthcare industry.

Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range. Total fixed cost? Total variable cost? Fixed cost per unit? Variable cost per unit? Explain the relationship between step-fixed costs and the relevant range. References would be a bonus! This question is found on page 448 in Financial Management of Heath Care Organizations (Zelman, et al., 2014).