QUESTIONS FOR DISCUSSION
l. Is your school currently producing at capacity (i.e., teaching as many students as possible)? What considerations might inhibit full capacity utilization?
There may be empty seats in your classroom that indicate unused capacity. Moreover Although it would be impractical to offer classes aren’t available around the clock, capacity utilization has increased as many schools have added early morning, night, and weekend classes to traditional Monday through Friday daytime classes. It is difficult to enroll the exact number of students to fill up each classroom for every course and even if it were possible, some students would still drop out of specific classes or even the school. Due to the nature of our educational system, these students cannot be replaced during the middle of a semester.. However, if every room were packed with students, the students might distract each other and overall learning would be lower. Also, the marginal cost of additional instructors might be too high to justify additional (small) classes.
2. What are the production costs of your economics class? What are the fixed costs? The variable costs? What is the marginal cost of enrolling more students?
The fixed costs are the costs of providing the classroom and its equipment, and some level of utilities, and the prorated share of the university's infrastructure attributed to this class. Even if the college owns the building, it has an opportunity cost. (What else might the building be used for?) The variable costs include the cost of the instructor, materials (chalk or markers, handouts), and some additional utilities. the costs of processing registrations and grades (borne by the university) and the opportunity cost of time and textbooks (borne by the students). The marginal cost of enrolling one more student is the paperwork costs from the registrar and the instructor, and the opportunity cost of time, textbooks, and marginal tuition, for the student.nearly zero as long as there is a seat available in the classroom.
3. Suppose you set up a lawn-mowing service and recruited friends to help you. Would the law of diminishing returns apply? Explain.
In the short run, Yyes. A, as more and more friends helped, there would be capital constraints such as a limited number of lawn mowers, rakes, etc. Sharing the tools reduces each worker’s productivity. tAlso, they might tend to get in each other’s way and bicker and fuss. Also, there are likely to be capital constraints such as limited number of lawn mowers, rakes, etc. Sharing the tools reduces each worker’s productivity. The result would be to decrease the output of each added worker over that of the previous worker.
4. What are the fixed costs of (a) a pizza shop; (b) an Internet Service Provider, (c) a corn farm? Who needs the highest sales volume to earn a profit?
a. The fixed costs of a pizza shop include rent on the building (even if they own the building there is the opportunity cost), insurance, some minimal level of utilities (for example, for security and signage), ovens and other equipment, delivery cars, etc.
b. The fixed costs of an Internet Service Provider include rent on the building, the computer servers, the software necessary to provide access to the Internet, and a dedicated telephone line.
c. The fixed costs of a corn farm include the land, buildings, tractors, combines, and the planting and tillageother equipment.
Whichever business has the highest fixed costs The corn farmer needs the highest sales volume to earn a profit. because the profit per unit is the lowest for the corn farmer.
5. Owner-operators of small gas stations rarely pay themselves an hourly wage. Does this practice reduce the economic cost of dispensing gasoline?
No, this practice does not reduce the economic cost of dispensing gasoline. It can change the accounting cost, but not the economic cost. Economists focus on opportunity costs; they include an allowance for how much the owner could have earned in an alternative job.
6. In the headline on page 1142, why did MPP fall to zero? What was the opportunity cost of those surplus workers?
As more workers are hired in a given plant, MPP declines. If too many are hired, MPP may even fall to zero, or less. In this case, the Headline tell us that there were surplus, i.e., too many, workers. The opportunity cost to the factory owners, i.e., the state as these were state-run enterprises, of the surplus workers was what they could have done had they not hired them. This could include purchasing equipment so that the productivity of the work force would increase.For the given level of technology and level of capital, the additional worker reduced average product of the other workers just enough to cancel his/her own average product. The net change in output in this case was zero. The marginal output generated by additional workers was zero because too many workers were employed using the fixed amount of capital. Having surplus workers means productive activities in other industries were lost. More of the other goods could have been produced, but were given up due to misallocation of resources.
7. Why might a producer not accept a price below marginal cost?
If price is below marginal cost, then the producer is taking a loss. If the producer knows in advance that the price will be below the marginal cost of production, then the firm will not even cover it’s variable cost of production. Since variable costs are avoidable, the firm would first chose to not produce rather than sell at a price below its MC.
8. What are the fixed input constraints that limit worker productivity in the typical fast-food outlet?
The fixed inputs in a typical fast food outlet include fry lines, assembly tables, cash registers, and the number of drive through lanes.
9. How does capital investment affect the marginal physical product of labor? Does more college education have the same kind of effect? Which is a better investment?
Capital investment should increase the MPP of labor. If crowding is a problem in the work place, spreading labor out over more floor space and machines should minimize the crowding effect and increase productivity. Usually, new capital also incorporates new innovations and technology that also improves the productivity of the existing labor force. College education should also improve labor productivity because critical thinking skills are generally improved through a college education. The more effectively workers are able to resolve production problems, the lower the cost of production will be. Both types of investment are important for an efficient production process.