ECN 320 ECN320 Module 4 Homework Solution (AAU Online)
PART I: SHORT RESPONSE
1.Define the following terms: fixed cost, variable cost, and total cost.
2.What happens to the difference between ATC and AVC as a firm’s output expands? Explain.
3.What are economies of scale and diseconomies of scale? Please give an example.
4.Your rich uncle died and left you $100,000, which you decided to use for your own Internet business. What business will you go into and what will be you fixed and variable costs? Show how your business can take advantage of economies of scale.
5.Can a firm losing money go out of business in the short run? If it can’t, explain why.
6.Why are there no fixed costs in the long run?
7.Why is a business firm never in the long run?
8.On what basis does a firm decide whether or not to shut down? On what basis does it decide whether or not to go out of business?
9.What are the fixed and variable costs for a car wash? Is it likely to experience economies of scale?
10.You have decided to open some movie theaters. Should you open six 200-seat theaters at six different locations, or open the six 200-seat theaters in one large building? Explain your answer in terms of economies of scale and diseconomies of scale.
11.Should you fix your old car—or buy a new one? Answer in terms of fixed and variable costs.
PART II: JOURNAL ACTIVITY
1.How much are the ﬁxed and variable costs of renting a car for a week at Chicago’s O’Hare Airport?
2.How did you figure this information?
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