Module 21 Discussion:

Students,

Please discuss the cost of owning a car. Assume the car is a fixed input while it is in the garage and a
variable input when you drive it. What are the fixed costs of owning a car (as it sits in the garage) and
the variable costs of owning a car (as you drive the car)? Discuss.

Answer:

A fixed cost is a cost that does not depend on the quantity of output produced. It is the cost of the
fixed input (Krugman & Wells page 322). The fixed cost of owning a car includes, monthly insurance
, and the cost of the its license plate. Variable cost includes gas and car maintenance & repair, such as, oil
changes and fixing or replacing a non-functional part.

Krugman, P., Wells, Economics Third Edition. New York, NY: Worth Publishers.

Module 21 page (322)

Module 22 Discussion:

Students,

Suppose a student has taken two exams and scored a 75 and a 95 (both equally weighted), what is
their exam average? If the marginal or next exam score is 90, what will happen to the student's
average? What if the additional, or marginal exam score is 70?

Answer:

Average total cost, often referred to simply as average cost, is total cost divided by quantity of
output produce. ATC= Total cost/Quantity of output (Krugman & Wells page 327).

ATC= (75+95)/2=85

ATC= (75+95+90)/3=86.67

ATC= (75+95+90+70)/4=82.5

Krugman, P., Wells, Economics Third Edition. New York, NY: Worth Publishers.

Module 22 page (327)

Module 23 Discussion:

Students,
Define the "long run"-is it a week, a month, a year, a decade? Discuss. Consider the long run for a
fruit fly versus that for an elephant. Discuss.

Think about two different kinds of hardware stores-the small, local, family-owned store and the large
chain stores. What advantages do you see for each kind of store? Discuss. What are the benefits of
becoming larger? Discuss. What are the drawbacks of becoming too large?

In the long run, when a producer has had time to choose the fixed cost appropriate for its desired
level of output (Krugman & Wells page 327).

A fly has a 24-hour life span, compared to an elephant which can live on average for about 70 years.
The fly must find a suitable host area to lay its eggs within a 24-hour period. An elephant is pregnant
for 2 years and therefore, has more time to find food, but must also have a larger quantity at a
higher frequency.

Small hardware stores, may have a small inventory capacity, that can be all be sold, which means, it is
easier for a smaller store to operate at equilibrium. Family-owned stores, may have a uniqueness that
gives them an edge against larger competitors; which in effect can gain them popularity with
consumers. Larger stores usually are more popular and generate higher profits. The benefits of
becoming larger includes, more consumers and larger profits, and opportunities to expand into
different areas. Larger companies are very intricate in the way it operates; which means they are
more complicated to manage. If managed incorrectly, the consequences are more devastating,
meaning larger company may not be as resilient as smaller ones.

Krugman, P., Wells, Economics Third Edition. New York, NY: Worth Publishers.

Module 23 page (327)

Module 24 Discussion:

Students,

Have you ever played the game "Monopoly?" What is the object of the game, and the best strategy
for winning? What happens to the rent of a property when one owner owns all the properties of the
same color? Discuss.

Answer:

The object of the game, Monopoly, is to purchase as many properties, which has a rent expense for
other players. The best strategy to win is to gain the most properties possible. The winner is the
individual who does not go bankrupt or generate the most revenue. The rent of a property increases
when one owner owns all the properties of the same color; resulting in higher revenues.

Krugman, P., Wells, Economics Third Edition. New York, NY: Worth Publishers.

Module 24