Dana, who is a trained yoga instructor, spends 3 hours baking and packing 10 box
ID: 2442798 • Letter: D
Question
Dana, who is a trained yoga instructor, spends 3 hours baking and packing 10 boxes of cookies. The cookie ingredients cost $5 per box, and she sells the cookies for $10 a box. Given that she can also teach yoga for $50 an hour, what is her opportunity cost of baking cookies?
0
150
50
100
A lawn service mows residential and commercial lawns. It charges $50 per residential lawn, and $200 per commercial lawn. The firm has a fixed supply of 20 workers on staff, and all other inputs and costs are fixed, so it only needs to maximize revenue, which will also maximize profit. The following production functions describe the number of residential and commercial lawns that can be mowed per week:
QR = 50LR – LR2
QC = 25LC – 0.5LC2
How many workers should the firm allocate to mowing residential lawns?
0
20
5
15
A firm has fixed costs of $10,000/month. It produces two goods, which it sells at the following quantities (per month), prices, and average variable costs:
A profit maximizing firm should
A) stop producing good two in the short run, and not exit in the long run.
B) stop producing good two in the short run, and exit in the long run.
C) stop producing good one in the short run, and exit in the long run.
D) produce both goods in the short run, and exit in the long run.
Explanation / Answer
1. Given that Dana bakes 3 hours, her opportunity cost for baking i.e. the amount of money forgone in not teaching yoga = $150.
Ans. (b)
2. Given that labour supply and the costs per worker is fixed, the firm will earn the highest profits if it allocates all 20 workers for mowing commercial lawns.
Thus, the firm shoukd hire 0 workers for mowing residential lawns.
Ans. (a)
3. The profit maximizing firm should stop producing good 2 in the short run and exit in the long run. This is becuase the firm js unable to recover even its variable costs in the short run.
Ans. (b)
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