Chapter 7 Review
Supplemental Instruction
Iowa State University / Leader: / Veronica
Course: / Econ 101
Instructor: / Kreider
Date: / 11-3-14
  1. Give examples for the following:

Vocab / Definition / Real Life Example
Variable Input / An input whose usage can change over some time period
Fixed Input / An input whose quantity must remain constant over some time period
Lumpy Input / An input that can only be adjusted in large, indivisible amounts
Explicit Cost / An opportunity cost where an actual payment is made
Implicit Cost / An opportunity cost, but no actual payment is made
Sunk Cost / An irrelevant cost because it cannot be affected by any current or future decision
  1. In the short run inputs can be ______
  2. In the long run inputs can only be______. Why?
  1. What is the law of diminishing marginal returns? How does the shape of a total product curve reflect this?
  1. Kale is deciding whether to keep working at his office, where he makes $60,000 a year, or to invest in his own firm that would cost him: $20,000 a year for rent, $100,000 a year on salaries, and $5,000 a year for utilities.
  2. What is his total implicit cost per year to start his firm?
  1. What is Kale’s Total cost per year if he starts his firm?
  1. What is Kale’s implicit and total cost if he needs to invest $120,000 in his firm. Assume interest rate on investments is 2%?
  1. What is Kale’s implicit and total cost if at his office he makes $40,000 a year, and it costs him $15,000 for rent, $60,000 on salaries and $10,000 for utilities and supplies, and he invests $30,000. Assume interest rate on investments is 12%?
  1. Explain what the Least-Cost Rule is and give an example. What are the conditions for a firm to follow the Least-Coat Rule?
  1. What are the equations or symbols for the following: Make sure you know how to calculate all of the following

Total fixed cost
Total variable cost
Total cost
Average fixed cost
Average variable cost
Average total cost
Marginal cost
  1. At what outputs do you follow the following curves?
  2. ATC0?
  1. ATC1?
  1. ATC2?
  1. ATC3?
  1. On the curve below identify at what output the following are true:
  2. Diseconomies of Sale?
  1. Where is Economies of Scale?
  1. Where is Constant Returns to Sale?
  1. Where is Minimum Efficient Scale?