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.

7. The production engineers at Impact Industries have derived the expansion path shown in the following figure. The price of labor is $100 per unit.

There is a graph showing the expansion path and three curves at 120, 180, 240 output levels.The expansion path hits these lines at(120) 20 (C)(capital units) 4(L)(Labor units, (180) 40 (C) 6(L), (240) 50(C) 8(L). There are three straight lines in faded gray that run with these curves…(120) 40(C) to 8(L), (180) 60(C) to 12(L), (240) 90 (C) to 18 (L)…I hope this helps recreate the graph? Capital runs by 10’s to 100 on the left-vertically and Labor runs by 2’s to 20 horizontally

a) what price does Impact Imdustries pay for capital?

b) if the manager at Impact decides to produce 180 units of output, how much labor and capital should be used in order to minimize total cost?
c) what is the total cost of producing 120, 180, and 240 units of output in the long run?
d) Impact Industries originally built the plant (i.e. purchased the amount of capital) designed to produce 180 units optimally. In the short run with capital fixed, if the manager decides to expand production to 240 units, what is the amount of labor and capital that will be used? (hint: how much the firm expand output in the short run when capital is fixed?
e) Given your answer to part d, calculate average variable, average fixed, and average total cost in the short run?

Chapter 10

1. You are planning to estimate a short-run production function for your firm, and you have collected the following data on labor usage and output:

Labor Usage:
3
7
9
11
17
17
20
24
26
28
30

Output:
1
2
3
5
8
10
15
18
22
21
23

a) does a cubic equation appear to be a suitable specification, given these data? You may wish to construct a scatter diagram to help you answer this question.

b) Using a computer and software for regression analysis, estimate your firm’s short run production function using the data given here. Do the parameter estimates have the appropriate algebraic signs? Are they statisically significant at the 10 percent level?

c) At what point do you estimate marginal product begins to fall?

d) Calculate estimates of tota, average, and marginal products when the firm employs 23 workers.

e) When the firm employes 23 workers, is short-run marignal cost (SMC) rising or falling? How can you tell?

2. Dimex Fabrication Company, 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 + 10K2L2
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 plans to employ 50 workers. Calculate the 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+ cQ^2
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:19 0.7360 39.428 0.0001
Variable Parameter Estimate Standard Error T-Ratio P-Value
Intercept 191.93 54.65 3.512 0.0029
Q -0.0305 0.00789 23.866 0.0014
Q2 0.0000024 0.00000098 2.449 0.0262

a. Are the estimates a,b,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?