Costs in the short run Study Plan

In the short term, as production reaches high levels,

all per unit costs increase except average fixed cost.

A firm's ________ consist of expenditures that must be made before production starts that typically, over the short run, ________, regardless of the level of production.

fixed costs; do not change

Which of the following is most likely to be a fixed cost?

mortgage payments

If average total cost is increasing, ________.

the marginal cost must be greater than average total cost

Pilar's taco trucks sells about 400 various tacos per day for an average price of $5. On average, each tacos cost $3 (includes labor, materials and miscellaneous), Pilar's profit margin is ________.

$2 per taco

A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital and $200,000 on materials. What was the firm's accounting profit?

$50,000

When this firm produces 5 units, the average total and average variable cost respectively are Quantity produced/dayTotal CostVariable Cost0$10001$150$502$175$753$225$1254$300$2005$400$3006$550$450

1 $80; $60

The table below shows cost data for WipeOutSki Company, which manufactures skis for beginners. If the company's fixed costs are $30, what is the average variable cost at two units of output? Quantity 0 1 2 3 4 5 6 Variable Cost 0 10 25 45 70 100 135 Fixed Cost 30 30 30 30 30 30 30 Total Cost Average Variable Cost Average Total Cost Marginal Cost

12.50

Salary payments are

explicit costs

When an economist uses the term "technology," what they mean is

the specific processes used to produce a product.

An entrepreneur quits a job where she was paid $75,000 to set up her own business. The new firm had sales revenue of $300,000 last year, while spending $150,000 on compensation for employees (excluding the owner), $25,000 on capital, and $25,000 on materials. What was the firm's economic profit?

$25,000

Suppose that a firm produces 10 units of output. Its average variable cost (AVC) = $25, average fixed cost (AFC) = $5, and marginal cost (MC) = $30. The firm's total cost is ________.

$300

Dixie, a cattle ranch owner, earns $350,000/month in revenue. Her monthly costs include: Administrative cost: $35,000. Feed: $40,000. Equipment and maintenance. $55,000. Labor: $90,000. Transportation: $20,000. Miscellaneous: $35,000. Foregone rent for the land used for cattle grazing: $18,000. The value of her daughter's time that helps on weekends: $4,000. Owner's salary: $15,000. Dixie's accounting and economic profit respectively are

$60,000 and $38,000.

The marginal cost of the 6th unit is Quantity produced/dayTotal CostVariable Cost0$10001$150$502$175$753$225$1254$300$2005$400$3006$550$450

150

As production increases,

total cost will keep increasing.

The following cost information shows that as production increases, Quantity produced/dayTotal Cost0$2,0001$2,5002$2,8003$3,3004$4,1005$5,3006$7,000

average total cost decreases and then increases.

Marginal cost is equal to average total cost when ________.

average total cost is minimized

As production increases,

average variable cost will decrease and then increase.

The term ________ is used to describe the additional cost of producing one more unit.

marginal cost

The cost information in the following table shows that as production increases, Quantity produced/dayTotal CostVariable Cost0$5001$75$502$110$753$155$1004$210$1505$270$1756$345$250

marginal cost eventually increases.

If a firm's average total cost is increasing, then

marginal cost must be higher than average total cost

Sunk costs ________.

should have no effect on output decisions

Danielle wants to expand her business and use the 10 acre property she owns and rents to a local sheep rancher for $10,000/year, to build a mall for $4 million. Danielle's total economic costs of the expansion plan are

the $10,000 in foregone rent and the $4 million cost of the mall.

Implicit costs are ________.

a foregone opportunity to do something else with your resources

Jodie bought a used van to start her food truck business for $8,000. She then spent $7,000 to repair and decorate it. Jodie's mom insists that the business only makes $2,500 per week in revenue which does not cover the cost of the truck. Jodie argues that

the cost of the truck and repairs are sunk costs and her food truck can be profitable.

Diego wants to expand his business to build a warehouse and office building for $2 million. He'll use the 5 acre property he owns and currently rents to a local cattle rancher for $5,000. What are the implicit costs of of this expansion?

the foregone rent from the cattle rancher

Total product refers to

the quantity of output produced for a given quantity of labor (number of workers).

According to the following cost information, marginal cost and average total cost are equal when the firm produces ________.Quantity produced/dayTotal Cost0$1001$1502$1953$2254$2755$3756$450

6 units

Which of the curves in the following graph is the marginal cost curve?

A

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

Divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be.

________ include all of the costs of production that increase with the quantity produced.

Variable costs

Given the cost information below, determine the profit margin when this firm produces 3 units per day and sells its product for $2,500 per unit.Quantity produced/dayTotal Cost0$2,0001$2,5002$2,8003$3,3004$4,1005$5,3006$7,000

$1,400

The table below shows cost data for WipeOutSki Company, which manufactures skis for beginners. If the company's fixed costs are $30, what is the marginal cost in C? Quantity 0 1 2 3 4 5 6 Variable Cost 0 10 25 45 70 100 135 Fixed Cost 30 30 30 30 30 30 30 Total Cost Average Variable Cost Average Total Cost Marginal

$20.00

A shoe factory produces 20 units of output. Its average fixed cost (AFC) = $25, average total cost (ATC) = $35, and marginal cost (MC) = $15. The shoe factory's total variable cost is ________.

$200

When this firm produces 5 units of output, the average total and average variable cost respectively are Quantity produced/dayTotal CostVariable Cost0$10001$150$502$175$753$225$1254$300$2005$400$3006$550$450

$80, $60

Which of the following statements is true about accounting profit?

Because economic cost includes implicit and explicit costs, accounting profit is higher than economic profit.