Chapter 22 Homework Assignment
5QD Why will the profit-maximizing rate of output for a profitable firm typically be larger than the rate of output that minimizes average total cost?
The profit-maximizing rate of output for a profitable firm will usually be larger than the rate of output that minimizes average total cost because at minimum point of average total cost, profit per unit will be high. However, the least cost of production occurs at the point where the marginal cost is equal to marginal revenue.
6QD What rate of output is appropriate for a “nonprofit” corporation (such as a hospital)?
If the nonprofit corporation has to pay for itself, the rate of output at which total costs equal total revenue (0 profit), probably marks the correct rate of output.
7QD What costs did GM eliminate when it shut down its plants? How about Dell? GM:
By closing 15 plants for 9 weeks, GM cut costs in the form of wage costs for labor, its payroll tax match, materials, and utilities. Dell:
Dell decided to close a plant in Texas so it could eliminate both variable as well as fixed costs supplementary with the factory.
8QD What was the opportunity cost of Mr. Fujishige’s farm? Is society better off with another Disney theme park? Explain.
Mr. Fujishige could have made $32 million per year if he leased the land to Disney or $116 million if he sold the land to developers. He was most likely making significant losses despite his profit from his strawberry farm. Since more people are willing to pay for a theme park than they are willing to pay for strawberries, the theme park would most likely be better for society.