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Exam 13: The Costs of Production

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Question 81

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The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.

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Question 82

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Which of the following is an example of an implicit cost?

A) salaries paid to owners who work for the firm
B) interest on money borrowed to finance equipment purchases
C) cash payments for raw materials
D) foregone rent on office space owned and used by the firm

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Question 83

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The things that must be forgone to acquire a good are called

Table 13-19 -Refer to Table 13-19. What is the average fixed cost of producing 430 units of output?

Economic profit is equal to total revenue minus the

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm C is experiencing diseconomies of scale.

Scenario 13-8 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. -Refer to Scenario 13-8. What are Wanda's total accounting profits?

When a factory is operating in the short run,

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.

Describe the relationship between average variable cost and marginal cost.

Figure 13-3 -Refer to Figure 13-3. Which of the following statements best captures the nature of the underlying production function (not pictured) ?

Total revenue equals

Table 13-18 -Refer to Table 13-18. What is the marginal product of the sixth worker?

According to the mathematical laws that govern the relationship between average total cost and marginal cost, where must these two curves intersect?

Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first is the existence of diminishing marginal product, which causes it to rise. What would be the second reason? Assume that the marginal cost curve is linear. (Hint: The second reason relates to average fixed cost)

In the short run, if a firm produces nothing, total costs are zero.

Scenario 13-22 Suppose that a small hair styling salon had revenues of $150,000 in a given year. The owner spent $10,000 on utilities, $60,000 on supplies (shampoo, conditioner, hair coloring and other chemicals, etc.), and $50,000 on equipment (mirrors, chairs, scissors, curling irons, etc.), including maintenance. The owner could have earned $50,000 working at another salon. -Refer to Scenario 13-22. What is the accounting profit for the hair styling salon?

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision?