firm produces a quantity of 5 units that it sells for a price of $25 each.

a. What will be the company’s profits or losses?

b. How can you tell at a glance whether the company is making or losing money at this price by looking at

average cost?

c. At the given quantity and price, is the marginal unit produced adding to profits?

5. If two painters can paint 200 square feet of wall in an hour, and three painters can paint 275 square feet,

what is the marginal product of the third painter?

6. Return to the problem explained in Table 7.13 and Table 7.14. If the cost of labor remains at $40, but the

cost of a machine decreases to $50, what would be the total cost of each method of production? Which

method should the firm use, and why?

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7 • Review Questions 185

7. Suppose the cost of machines increases to $55, while the cost of labor stays at $40. How would that affect

the total cost of the three methods? Which method should the firm choose now?
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