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Exam 13: The Costs of Production

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Question 71

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A firm's total profit equals its marginal revenue minus its marginal cost.

A) True
B) False

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Question 72

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Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?

A) Shoe polish and wages Pete could earn delivering newspapers
B) Shoe polish and rent on the shoe stand
C) Wages Pete could earn delivering newspapers and interest that Pete's money was earning before he spent his savings to set up the shoe-shine business
D) Rent on the shoe stand and interest that Pete's money was earning before he spent his savings to set up the shoe-shine business

E) None of the above
F) A) and B)

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Question 73

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Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.

Economies of scale occur when

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?

If the marginal cost of producing the tenth unit of output is $3, and if the average total cost of producing the tenth unit of output is $2, then at ten units of output, average total cost is rising.

Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the shape of the firm's total-cost curve?

Kate is a florist. Kate can arrange 27 bouquets per day. She is considering hiring her husband Amir to work for her. Together Kate and Amir can arrange 41 bouquets per day. What is Amir's marginal product?

The Bow Wow company produced and sold 400 dog beds. The average cost of production per dog bed was $40. Each dog bed can be sold for a price of $75. Bow Wow's total costs are

What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?

Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the shape of this firm's total-cost curve?

When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale.

Suppose that a worker can produce 100 units of output in 7 hours. In the 8th hour, he can produce 12 units of output. The worker can produce 112 units of output in 8 hours.

If a firm produces nothing, it still incurs its fixed costs.

Describe the relationship between average variable cost and average total cost. How are the general shapes of the AVC and ATC curves related?

In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.

Accountants often ignore implicit costs.

Table 13-13 Listed in the table are the long-run total costs for three different firms. $\begin{array} { | l | l | l | l | l | l | } \hline \text { uantity } & \mathbf { 2 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \\\hline \text { Firm A } & 100 & 100 & 100 & 100 & 100 \\\hline \text { Firm B } & 100 & 200 & 300 & 400 & 500 \\\hline \text { Firm C } & 100 & 300 & 600 & 1,000 & 1,500 \\\hline\end{array}$ -Refer to Table 13-13. Firm B is experiencing diseconomies of scale.

If a firm produces nothing, which of the following costs will be zero?

A difference between explicit and implicit costs is that