Answers to “More Practice Problems With Cost”

1. Marty’s Frozen Yogurt

a. Fixed inputs: machines, refrigerators

b. Variable inputs: mix, cups, sprinkles, workers

c. Inputs on the x-axis, outputs on the y-axis, upward sloping curve, initially steep, then flattening out

d. MP: 110, 90, 70, 30, 20, 10

e. Diminishing returns/diminishing marginal product: as additional workers are added, each worker adds to output but at a decreasing rate.

2. Marty’s Frozen Yogurt Cost Calculations

Fixed cost: $100

Variable cost: $0, 135, 260, 475, 570, 660, 745

Total cost: $0, 235, 360, 575, 670, 760, 845

Average total cost: -, 2.14, 1.80, 1.76, 1.90, 2.06, 2.26

Marginal cost: 1.23, 1.39, 1.64, 3.17, 4.50, 8.50

270 cups of frozen yogurt 

Multiple choice:

1. D

2. A

3. A

4. A

5. A

6. D

Short Answer:

1. Spreading effect

2. Marginal product is falling; marginal product is rising

3. AFC changes; AVC stays the same; ATC changes; MC stays the same

4. spreading effect

5. diminishing returns effect

6. spreading effect at low levels of out; diminishing returns effect at high levels of output

7. upward sloping, initially steep, then flattens, due to diminishing returns.  As input is added, output increases but at a decreasing rate.

8. SR: at least one fixed input; LR: all inputs are variable

9. B/c there is always a fixed cost present

10. AVC gets closer and closer to ATC but the two curves never touch.


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