The Lerner Index rate for the can of soup is 0.29/1.29 = 0.225 or 22.5% as the price is $1.29 and marginal cost is $1. If average cost is increasing as a firm produces more, then average variable cost must be rising. A manager hires labor at $12/hour and capital at $8/hour. Marginal product of labor is 60 units/hour and capital is 45 units/hour. The firm is not minimizing costs and should increase capital.

1. 10 The price of a can of Wolverine Chicken Noodle Soup is $1.29. The marginal cost to make the
soup is $1.00. What is the Lerner Index rate for the Can of soup? What is the mark-up? 11 If the
average cost of producing a good is increasing as a firm produces more of the good, then which of
the following must be true? a. AFC is falling b. AVC is rising c. MC>AVC d. All of the above e.
Cannot be determined 12 True or false: Long run cost functions can be "directly" obtained from the
producton function by first finding the expansion path. 13 A manager hires labor at $12 hour and
capital at $8/ hour. If the marginal product of labor 60 units of outputhour and the marginal product
of capital is 45 units/hour, is (a) the firm at a cost minimization and, (b) if not, should the firm
increase labor or capital? a. Yes, no change needed b. Yes, but Labor can be increased c. No,
Labor d. No, Capital