Colleen Egan Mt445 Unit 4 Assignment
Unit 4 Assignment
Student Name: Colleen Egan
Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.
1. Identify whether each of the following is an explicit cost or an implicit cost:
Implicit costs are costs that have occurred but are not always shown as an immediate cost, where explicit costs are costs that have occurred and is shown as a separate cost.
a) Payments for rented manufacturing equipment – Explicit, as the company would spend money to rent the equipment b) A firm’s use of a warehouse that it owns and could rent to another firm – Implicit, because there is no cost at the moment c) Wages paid to the firm’s workers – Explicit, as the company would be paying wages d) The wages the firm’s owner could earn if he worked for another company – Implicit, because the company does not spend any money on potential outside wages for the firms owner.
2. Consider the following information in the table for Pat’s Pizza Restaurant and answer the questions below.
Marginal Product of Capital
4,000
Marginal Produce of Labor
100
Wage Rate
$10
Rental Price of Pizza Ovens
$500
a. Is the owner of Pat’s Pizza Restaurant minimizing cost?
MPL/MPC 100 / 4000 = 1 / 40
Price Ratio = Wage rate = 10 / 500 = 1/50
1 / 40 does not = 1 / 50 so Pat’s Pizza Restaurant is not minimizing costs
b. Should he rent more ovens and hire fewer workers or rent fewer ovens and hire more workers? Explain.
It appears that the Restaurant makes more based on ovens than on workers, so they should rent more ovens and hire fewer workers in order to minimize their costs.
3. Consider a firm’s production decision in both the short-run and long-run. Explain what type of input costs might be fixed in the short-run and which might be variable in the short-run. Provide one example of each.
The type of input costs that are fixed in the short-run are
Student Name: Colleen Egan
Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.
1. Identify whether each of the following is an explicit cost or an implicit cost:
Implicit costs are costs that have occurred but are not always shown as an immediate cost, where explicit costs are costs that have occurred and is shown as a separate cost.
a) Payments for rented manufacturing equipment – Explicit, as the company would spend money to rent the equipment b) A firm’s use of a warehouse that it owns and could rent to another firm – Implicit, because there is no cost at the moment c) Wages paid to the firm’s workers – Explicit, as the company would be paying wages d) The wages the firm’s owner could earn if he worked for another company – Implicit, because the company does not spend any money on potential outside wages for the firms owner.
2. Consider the following information in the table for Pat’s Pizza Restaurant and answer the questions below.
Marginal Product of Capital
4,000
Marginal Produce of Labor
100
Wage Rate
$10
Rental Price of Pizza Ovens
$500
a. Is the owner of Pat’s Pizza Restaurant minimizing cost?
MPL/MPC 100 / 4000 = 1 / 40
Price Ratio = Wage rate = 10 / 500 = 1/50
1 / 40 does not = 1 / 50 so Pat’s Pizza Restaurant is not minimizing costs
b. Should he rent more ovens and hire fewer workers or rent fewer ovens and hire more workers? Explain.
It appears that the Restaurant makes more based on ovens than on workers, so they should rent more ovens and hire fewer workers in order to minimize their costs.
3. Consider a firm’s production decision in both the short-run and long-run. Explain what type of input costs might be fixed in the short-run and which might be variable in the short-run. Provide one example of each.
The type of input costs that are fixed in the short-run are