Magnificent Blooms is a florist specializing in floral arrangements for weddings, graduations, and other events. The firm has a fixed cost associated with space and equipment of $100 per day. Each worker is paid$50 per day. The daily production function for Magnificent Blooms is shown in the accompanying table.

$$\begin{array}{cc} \begin{array}{c} \text { Quantity of labor } \\ \text { (workers) } \end{array} & \begin{array}{c} \text { Quantity of floral } \\ \text { arrangements } \end{array} \\ \hline 0 & 0 \\ \hline 1 & 5 \\ \hline 2 & 9 \\ \hline 3 & 12 \\ \hline 4 & 14 \\ \hline 5 & 15 \\ \hline \end{array}$$

Calculate the marginal product of each worker. What principle explains why the marginal product per worker declines as the number of workers employed increases?

The production function for Marty's Frozen Yogurt is given in Problem 9. Marty pays each of his workers $80 per day. The cost of his other variable inputs is$0.50 per cup of yogurt. His fixed cost is $100 per day.

What is Marty's variable cost and total cost when he produces 110 cups of yogurt? 200 cups? Calculate variable and total cost for every level of output given in Problem 9.

The state needs to raise money, and the governor has a choice of imposing an excise tax of the same amount on one of two previously untaxed goods: either restaurant meals or gasoline. Both the demand for and the supply of restaurant meals are more elastic than the demand for and the supply of gasoline. If the governor wants to minimize the deadweight loss caused by the tax, which good should be taxed? For each good, draw a diagram that illustrates the deadweight loss from taxation.

Suppose a firm can sell as many units of output as it wants for a price of $\$ 15$ per unit and faces total costs as indicated in the table below. Use the optimal output rule to determine the profit-maximizing level of output for the firm.

$$\begin{array}{cc} \hline \text { Quantity } & \text { Total cost } \\ \hline 0 & \$ 2 \\ \hline 1 & 10 \\ \hline 2 & 20 \\ \hline 3 & 33 \\ \hline 4 & 50 \\ \hline 5 & 71 \\ \hline \end{array}$$

Which of the following is an example of an implicit cost of going out for lunch? A. the amount of the tip you leave the waiter B. the total bill you charge to your credit card C. the cost of gas to drive to the restaurant D. the value of the time you spent eating lunch E. all of the above

The accompanying diagram illustrates your local electricity company’s natural monopoly. The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company’s marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling.

If the government does not regulate this monopolist, which price will it charge? Illustrate the inefficiency this creates by shading the deadweight loss from monopoly.

Suppose that De Beers is a single-price monopolist in the diamond market. De Beers has five potential customers: Raquel, Jackie, Joan, Mia, and Sophia. Each of these customers will buy at most one diamond-and only if the price is just equal to, or lower than, her willingness to pay. Raquel's willingness to pay is $\$ 400$; Jackie's, $300; Joan's, $200; Mia's, $100; and Sophia's, $o. De Beers's marginal cost per diamond is$\$100$. The result is a demand schedule for diamonds as follows:

a. Calculate De Beers's total revenue and its marginal revenue. From your calculation, draw the demand curve and the marginal revenue curve.

b. Explain why De Beers faces a downward-sloping demand curve and why the marginal revenue from an additional diamond sale is less than the price of the diamond.

c. Suppose De Beers currently charges $\$ 200$ for its diamonds. If it lowers the price to $\$ 100$, how large is the price effect? How large is the quantity effect?

d. Add the marginal cost curve to your diagram from part a and determine which quantity maximizes De Beers's profit and which price De Beers will charge.

In the long run, A. all inputs are variable. B. all inputs are fixed. C. some inputs are variable and others are fixed. D. a firm will go out of business. E. firms increase in size.

Draw a correctly labeled graph of a production function that exhibits diminishing returns to labor. Assume labor is the variable input and capital is the fixed input. Explain how your graph illustrates diminishing returns to labor.

Use the data in the table provided to answer.

$$\begin{array}{ccc} \hline \text { Quantity } & \text { Total revenue } & \text { Total cost } \\ \hline 0 & \$ 0 & \$ 14 \\ \hline 1 & 18 & 30 \\ \hline 2 & 36 & 36 \\ \hline 3 & 54 & 44 \\ \hline 4 & 72 & 56 \\ \hline 5 & 90 & 72 \\ \hline 6 & 108 & 92 \\ \hline 7 & 126 & 116 \\ \hline \end{array}$$

What is the marginal revenue of the third unit of output? a. $\$ 8$ b. $\$ 14$ c. $\$ 18$ d. $\$ 44$ e. $\$ 54$

Which of the following is true for a perfectly competitive industry? A. There are many firms, each with a large market share. B. The firms in the industry produce a standardized product. C. There are barriers to entry. D. There are barriers to exit. E. There are a few firms, each with a small market share.

When a firm is producing zero output , total cost equals A. zero. B. variable cost. C. fixed cost. D. average total cost. E. marginal cost

The state needs to raise funds, and the governor has the option of levying an excise tax of the same amount on one of two previously untaxed goods: restaurant meals or gasoline sales. Both demand and supply for restaurant meals are more elastic than demand and supply for gasoline. Which good should be taxed if the governor wants to minimise the deadweight loss caused by the tax? Draw a diagram illustrating the deadweight loss from taxation for each good.

A production function shows the relationship between inputs and A. fixed costs. B. variable costs. C. total revenue. D. output. E. profit.