Costs - Applications

To learn more about the business of dying, go to www.sci-corp.com.

For current data on unit labor costs and underlying wage and productivity trends, visit the US Bureau of Labor Statistics at www.bls.gov.

PROBLEM # 1

Diminishing marginal returns applies to many everyday activities. Find out if diminishing marginal returns applies to searches on the web.

1. Pick up a topic for search on the web. You won’t actually be using the sites you find, so the choice can be fanciful, perhaps your last name, or first and last name, your school, your hometown, your pet—whatever is of interest to you. Use at least five search engines to search this topic. Keep track of the first ten recommended sites. Count the number of new sites identified by that search engine.

Possible search engines (or use those listed on your home web site, or others)
http://www.altavista.com/
http://infoseek.go.com/
http://www.orbitz.com/
http://www.yahoo.com/
http://www.ebig.com/
http://www.lycos.com/
http://www.alltheweb.com/
http://search.msn.com/

Name of search engine

Number of new sites identified

Marginal change in the number of new sites

2. Calculate the marginal change in the number of new sites. Are there diminishing marginal returns? Why did this occur?
3. What happens to the marginal cost of finding new sites (measured as the cost of your time) as you try new search engines?

PROBLEM # 2

Telephone service is a fascinating case study involving the costs of production presented in this chapter. Why does the government regulate prices for this service? How are these costs changing as consumers switch from wire-connected telephones to mobile telephones?

1. Find out about government regulation of subscriber line charges for wire-connected local service at from the US Federal Communications Commission at: http://www.fcc.gov/cib/faqs/faq-phone.html#1
2. For local wire-connected telephone service, what are the fixed costs? What are the variable costs?
3. Why does the Federal Communications Commission regulate this service?
4. Using your own knowledge about telephones, how has mobile telephone service affected fixed costs and variable costs for local service? How will these changes affect the goals set by the Federal Communications Commission?