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Exam 12: The Costs of Production

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Question 81

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Average variable cost is equal to total variable cost divided by quantity of output.

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Question 82

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Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business.To invest in his painting business,he withdrew $20,000 from his savings,which paid 3 percent interest,and borrowed $30,000 from his uncle,whom he pays 3 percent interest per year.Last year Walter paid $25,000 for supplies and had revenue of $60,000.Walter asked Tyler the accountant and Greg the economist to calculate his painting business's profit.

A) Tyler says his profit is $25,900,and Greg says his profit is $66,500.
B) Tyler says his profit is $35,000,and Greg says he lost $5,900.
C) Tyler says his profit is $34,100,and Greg says he lost $6,500.
D) Tyler says his profit is $34,100,and Greg says his profit is $34,100.

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Question 83

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Figure 12-5 -Refer to Figure 12-5.Curve D represents which type of cost curve?

The shape of the total-cost curve is unrelated to the shape of the production function.

Scenario 12-17 Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. -Refer to Scenario 12-17.Average variable cost will be

The opportunity cost of capital is an implicit cost almost every business incurs.

Table 12-10 Eileen's Elegant Earrings produces pairs of earrings for its mail order catalogue business.Each pair is shipped in a separate box.She rents a small room for $150 a week in the downtown business district that serves as her factory.She can hire workers for $275 a week.There are no implicit costs. -Refer to Table 12-10.What is the total cost associated with making 890 boxes of earrings per week?

The average-total-cost curve intersects

Accountants often ignore implicit costs.

Variable cost divided by the change in quantity produced is

Suppose that a firm has only one variable input,labor,and firm output is zero when labor is zero.When the firm hires 6 workers the firm produces 90 units of output.Fixed costs of production are $6 and the variable cost per unit of labor is $10.The marginal product of the seventh unit of labor is 4.Given this information,what is the average variable cost of production when the firm hires 7 workers?

The typical total-cost curve is U-shaped.

Table 12-8 -Refer to Table 12-8.What is the average fixed cost of producing 5 units of output?

Scenario 12-9 Jessica makes photo frames.She spends $5 on the materials for each photo frame.She can create one photo frame in an hour.She earns $10 per hour at a part-time job at the local coffee shop.She can sell a photo frame for $30 each. -Refer to Scenario 12-9.An economist would calculate the total profit for one photo frame to be

Figure 12-8 -Refer to Figure 12-8.Quantity B represents the output level where the firm

Consider the following information about baseball production at Bobby's Baseball Factory: Bobby pays all his workers the same wage,and labor is his only variable cost.From this information we can conclude that Bobby's average variable cost decreases

Table 12-10 Eileen's Elegant Earrings produces pairs of earrings for its mail order catalogue business.Each pair is shipped in a separate box.She rents a small room for $150 a week in the downtown business district that serves as her factory.She can hire workers for $275 a week.There are no implicit costs. -Refer to Table 12-10.What is the marginal product of the second worker?

Which of the following factors is most likely to shift IBM's total cost and marginal cost curves downward?

Table 12-15 Consider the following table of long-run total cost for four different firms: -Refer to Table 12-13.Which firm has diseconomies of scale over the entire range of output?

Diminishing marginal product suggests that the marginal