World of Ducati

Unit 4 Assignment

Student Name:

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:
      a) Payments for rented manufacturing equipment. Explicit
b) A firm’s use of a warehouse that it owns and could rent to another firm. Implicit
      c) Wages paid to the firm’s workers. Explici
d) The wages the firm’s owner could earn if he worked for another company. Implicit

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/MPK = 100/4000 = 1/40 Price ratio = w/r = 10/500 =1/50. Since the ratio do not equal, Pat is not minimizing the costs.

  b. Should he rent more ovens and hire fewer workers or rent fewer ovens and hire more workers?   Explain.

      Pat’s Pizza restaurant produces more pizzas per dollar from the last oven than from the last worker. This indicates that hee has too many workers and too few ovens. Therefore, to minimize cost, Pat should use more ovens and hire fewer workers. (Hubbard 390)

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....