Question 1

Two university graduates, Bill and Steve, worked for an advertising agency at an annual salary of $40,000 each for 3 years after they graduated. Then, they decided to quit their jobs and start a partnership that designs and builds Web sites. They rented an office for $12,000 a year and bought capital for $30,000. To pay for the equipment, Bill and Steve borrowed money from a bank at an annual interest rate of 6 percent. During their first year of operation, the partners' total revenue was $100,000. The market value of their capital at the end of the year was $20,000. If Bill and Steve do not design Web pages, their best alternatives are to return to their previous job.
a) What is the firm's economic depreciation?
b) What are the partnership's costs?
c) What is the firm's economic profit in the first year of operation?

Accepted Answer

The answer of Two university graduates, Bill and Steve, worked...

Question 2

Economies of scope has to do with lowering production costs by increasing the quantity of a product produced, whereas economies of scale has to do with lowering production costs by producing several products within the same firm.

Accepted Answer

Economies of scale refer to cost advantages due to increased output of a single product, while economies of scope refer to cost advantages from producing multiple products within the same firm.

Question 3

-FasterChip, Inc. is considering five alternative techniques for assembling personal computers. The table shows the amounts of labor and capital required by each of these techniques to make 10 computers a day. Labor costs $15 an hour and capital costs $100 a unit.
a) Which techniques are technologically efficient and which are not? Explain your answer.
b) Which technique is economically efficient? Explain.
c) If FasterChip uses its plant in Mexico, it can lower the labor cost to $10 an hour. Which technique will the company use in Mexico? Explain.

Accepted Answer

The answer of 
-FasterChip, Inc. is considering five alternative techniques...

Question 4

-The table above shows sales of the firms in the broomstick industry:
a) Calculate the four-firm concentration ratio.
b) Calculate the Herfindahl-Hirschman Index.
c) Based on your calculations, what is the structure of the industry?

Accepted Answer

The answer of 
-The table above shows sales of the...

Question 5

One year ago, Ms. Case and Mr. Bond opened a jewelry store called T & J. They invested $1,000,000 of their savings into the partnership to buy equipment and initial inventory. They rented a building for $90,000 a year, and hired two employees for an annual wage of $40,000 each. Case and Bond believed that the best alternative investment of their money would be government bonds, which could yield an annual return of 8 percent. To run the store, Case quit her previous job, at which she earned $100,000, but her former boss told her that she was welcome to return anytime. Bond kept his job with the government, but gave up 6 hours of leisure each week (for 50 weeks), the time he used to spend playing golf. Bond used to say: "I'd only give up my golf time if someone paid me $100 an hour." During the first year of operation, T & J paid $20,000 for utilities and the firm's total revenue was $350,000. The market value of T & J's equipment was $200,000 at the beginning of the year and $170,000 at the end of the year.
a) What is the economic depreciation of their capital?
b) What are T & J's opportunity costs?
c) What is the firm's economic profit in the first year of operation?

Accepted Answer

The answer of One year ago, Ms. Case and Mr....

Quiz 10: Organizing Production

Economies of scope has to do with lowering production costs by increasing the quantity of a product produced, whereas economies of scale has to do with lowering production costs by producing several products within the same firm.

-The table above shows sales of the firms in the broomstick industry: a) Calculate the four-firm concentration ratio. b) Calculate the Herfindahl-Hirschman Index. c) Based on your calculations, what is the structure of the industry?