You are thinking about setting up a lemonade stand. The stand itself costs $\$ 200$. The ingredients for each cup of lemonade cost $\$ 0.50$.

a. What is your fixed cost of doing business? What is your variable cost per cup?

b. Construct a table showing your total cost, average total cost, and marginal cost for output levels varying from $0$ to $10$ gallons. (Hint: There are $16$ cups in a gallon.) Draw the three cost curves.

Crandall considers cheese cubes and crackers to be ideal companions, consuming exactly one cheese cube with each cracker. He has $2.40 dollars to spend on cheese and crackers. One cheese cube is 20 cents, and one cracker is 10 cents. To answer the following questions, draw a diagram with crackers on the horizontal axis and cheese cubes on the vertical axis. a. What bundle will Crandall use? b. Cracker prices rise to 20 cents. How many cheese cubes and crackers will Crandall eat? c. Describe the income and substitution effects of this price increase.

A firm uses two inputs in production: capital and labor. In the short run, the firm cannot adjust the amount of capital it is using, but it can adjust the size of its workforce. What happens to the firm’s average total cost curve, the average variable cost curve, and the marginal cost curve when a. the cost of renting capital increases? b. the cost of hiring labor increases?

Draw the marginal-cost and average-total-cost curves for a typical firm. Explain why the curves have the shapes that they do and why they cross where they do.

Draw the marginal-cost and average-total-cost curve for a typical firm. Explain why the curves have the shapes that they do and why they cross where they do.

Jane's Juice Bar has the following cost schedules:

$$\begin{array}{lcc} \text { Quantity } & \text { Variable Cost } & \text { Total Cost } \\ \hline 0 \text { vats of juice } & \$ \quad 0 & \$ 30 \\ 1 & 10 & 40 \\ 2 & 25 & 55 \\ 3 & 45 & 75 \\ 4 & 70 & 100 \\ 5 & 100 & 130 \\ 6 & 135 & 165 \end{array}$$

Calculate average variable cost, average total cost, and marginal cost for each quantity.

Jane's Juice Bar has the following cost schedules:

$$\begin{array}{lcc} \text { Quantity } & \text { Variable Cost } & \text { Total Cost } \\ \hline 0 \text { vats of juice } & \$ \quad 0 & \$ 30 \\ 1 & 10 & 40 \\ 2 & 25 & 55 \\ 3 & 45 & 75 \\ 4 & 70 & 100 \\ 5 & 100 & 130 \\ 6 & 135 & 165 \end{array}$$

Graph all three curves. What is the relationship between the marginal-cost curve and the average-total-cost curve? Between the marginal-cost curve and the average-variable-cost curve? Explain.

Diminishing marginal product explains why, as a firm’s output increases, a. the production function and total-cost curve both get steeper. b. the production function and total-cost curve both get flatter c. the production function gets steeper, while the total-cost curve gets flatter. d. the production function gets flatter, while the total-cost curve gets steeper.

A commercial fisherman notices the following relationship between hours spent fishing and the quantity of fish caught:

$$\begin{array}{lc} & \text{Quantity of Fish} \\ \text{Hours} & \text{ (in pounds) } \\ \hline 0 \text{ hours } & 0 \text{ lb } \\ 1 & 10 \\ 2 & 18 \\ 3 & 24 \\ 4 & 28 \\ 5 & 30 \end{array}$$

a. What is the marginal product of each hour spent fishing?

b. Use these data to graph the fisherman's production function. Explain its shape.

c. The fisherman has a fixed cost of $\$ 10$ (his pole). The opportunity cost of his time is $\$ 5$ per hour. Graph the fisherman's total-cost curve. Explain its shape.

Draw a production function that exhibits diminishing marginal product of labor. Draw the associated total-cost curve. (In both cases, be sure to label the axes.) Explain the shapes of the two curves you have drawn.

Consider the following cost information for a pizzeria:

$$\begin{array}{lcc} \text { Quantity } & \text { Total Cost } & \text { Variable Cost } \\ \hline 0 \text { dozen pizzas } & \$ 300 & \$ 0 \\ 1 & 350 & 50 \\ 2 & 390 & 90 \\ 3 & 420 & 120 \\ 4 & 450 & 150 \\ 5 & 490 & 190 \\ 6 & 540 & 240 \end{array}$$

Construct a table in which you calculate the marginal cost per dozen pizzas using the information on total cost. Also, calculate the marginal cost per dozen pizzas using the information on variable cost. What is the relationship between these sets of numbers? Explain.

Smiling Cow Dairy can sell all the milk it wants for $\$ 4$ a gallon, and it can rent all the robots it wants to milk the cows at a capital rental price of $\$ 100$ a day. It faces the following production schedule:

$$\begin{array}{cc} \text{ Number of Robots } & \text{ Total Product } \\ \hline 0 & 0 \text{ gallons } \\ 1 & 50 \\ 2 & 85 \\ 3 & 115 \\ 4 & 140 \\ 5 & 150 \\ 6 & 155 \end{array}$$

How many robots should the firm rent? Explain.

Suppose that your college charges you separately for tuition and for room and board.

a. What is a cost of attending college that is not an opportunity cost?

b. What is an explicit opportunity cost of attending college?

c. What is an implicit opportunity cost of attending college?

Leadbelly Co. sells pencils in a perfectly competitive product market and hires workers in a perfectly competitive labor market. Assume that the market wage rate for workers is $\$ 150$ per day.

Suppose some pencil workers switch to jobs in the growing computer industry. On the side-by-side diagrams from part (c), show how this change affects the equilibrium wage and quantity of labor for both the pencil market and for Leadbelly. How does this change affect the marginal product of labor at Leadbelly?