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Exam 13: The Costs of Production

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Question 71

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A firm produces 400 units of output at a total cost of $1,200.If total variable costs are $1,000,

A) average fixed cost is 50 cents.
B) average variable cost is $2.
C) average total cost is $2.50.
D) average total cost is 50 cents.

E) A) and B)
F) A) and C)

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Question 72

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Economists and accountants both include forgone income as a cost to a small business owner.

A) True
B) False

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Question 73

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Bubba is a shrimp fisherman who can catch 4,000 pounds of shrimp per year.Bubba is considering hiring his cousin Bobby to work for him.Bobby can catch 3,000 pounds of shrimp per year.If Bubba hires Bobby,what will be the total output of his shrimp business?

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)

Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. -Refer to Figure 13-9.This firm experiences diseconomies of scale at what output levels?

Table 13-10 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 13-10.Eileen has received an order for 3,000 boxes of earrings for next week.If she expects that the trend in the marginal product of labor will continue in the same direction,it is most likely that her best decision will be to

Figure 13-6 -Refer to Figure 13-6.Which of the following can be inferred from the figure above? (i) Marginal cost is increasing at all levels of output. (ii) Marginal product is increasing at low levels of output. (iii) Marginal product is decreasing at high levels of output.

Joy sells 200 glasses of iced tea at $0.50 each.Her total costs are $25.Her profits are

The fact that many inputs are fixed in the short run but variable in the long run has little impact on the firm's cost curves.

Pete owns a shoe-shine business.His accountant most likely includes which of the following costs on his financial statements? (i) Shoe polish (ii) Rent on the shoe stand (iii) Wages Pete could earn delivering newspapers (iv) Interest that Pete's money was earning before he spent his savings to set up the shoe-shine business

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

Table 13-11 Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts.The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. -Refer to Table 13-11.What is the marginal cost of creating the tenth instructional module in a given month?

For a large firm that produces and sells automobiles,which of the following costs would be a variable cost?

Table 13-16 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-16.Firm C is experiencing diseconomies of scale.

Economic profit is greater than or equal to accounting profit.

When marginal cost is rising,average variable cost

Average total cost reveals how much total cost will change as the firm alters its level of production.

Total revenue minus only explicit costs is called

Table 13-8 -Refer to Table 13-8.What is the average fixed cost of producing 5 units of output?

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.