Econ

Forgone interest payments when the money is invested in one's business are an __________ of capital.

opportunity cost

Francisco's dog walking business experiences diminishing marginal productivity with the addition of the

third worker

A data analysis firm has an idle computer. If the firm hires another worker to put the idle computer to use,

variable costs will rise.

If a firm produces nothing, _____ costs are zero, and the firm will incur _____ costs.

variable; fixed

When a firm produces 875 units of output, the firm's average fixed cost is $0.28, the firm's average variable cost is $0.20, and the firm's marginal cost is $0.22. The firm's total cost of producing 875 units is

$420

Refer to the table. What is the marginal product of the first worker?

150 units

A firm's opportunity costs of production are equal to its implicit costs only.

False

Total cost is the amount a firm receives for its output, and total revenue is the market value of the inputs a firm uses in production.

False

When average total cost equals marginal cost, marginal cost is at its minimum.

False

Profit is defined as a firm's

total revenue minus total cost.

The explicit costs of an item include all those things that must be forgone to acquire that item.

False

Diminishing marginal productivity implies that total output decreases as the quantity of the input increases.

False Diminishing marginal productivity implies that the marginal product of an input declines as the quantity of the input increases. Even though marginal product declines, it is positive, so total output increases.

Oscar owns an organic vegetable company. His accountant most likely includes which of the following costs on his financial statements?

cost of vegetable seeds

Fixed costs are incurred only if the firm produces a positive quantity of output.

False

Refer to the table. If this firm chooses to produce at an efficient scale, it should produce 1 8 2 12 3 12 4 24 5 40

3 units of output.

Which of the following is not an example of an opportunity cost that is also an implicit cost?

lease payments for the building in which the firm operates

If a firm chooses to produce at its efficient scale, it should choose the output level where

marginal cost intersects with average total cost.

Gavin observes that his average total costs of producing widgets are decreasing. For Gavin's firm,

marginal costs must be lower than average total costs.

Which of the following expressions is correct?

Average fixed cost is total fixed cost divided by the quantity of output.

The relationship between the quantity of an input and the quantity of output is called the

Production Function

Graph curving towards the right Refer to the Figure. The graph illustrates a typical

Production function

Explicit Costs

are considered by economists and accountants when measuring a firm's profit

A firm produces 500 units of output at a total cost of $1,500. If total variable costs are $500, then

average fixed cost is $2.

A firm produces 500 units of output at a total cost of $1,500. If total variable costs are $500, then

average total cost is $3. TC = FC + VC. $1,500 = FC + $500, so FC = $1,000. AFC = FC/Q = $1,000/500 = $2. ATC = TC/Q = $1,500/500 = $3. AVC = VC/Q = $500/500 = $1. We are unable to determine MC from the information given.

Wilbur's Bean Emporium serves barbeque sandwiches over the lunch hour. The marginal cost of the 50th barbeque sandwich is $1.50. The average total cost of the 49th sandwich is $1.75. For Wilbur's Bean Emporium, __________ when output is 50 sandwiches.

average total costs are falling

Wilbur's Bean Emporium serves barbeque sandwiches over the lunch hour. The marginal cost of the 50th barbeque sandwich is $2. The average total cost of the 49th sandwich is $1.75. For Wilbur's Bean Emporium, __________ when output is 50 sandwiches.

average total costs are rising

Input costs that require an outlay of money by the firm are called _______ costs while input costs that do not require an outlay of money by the firm are called _______ costs.

explicit; implicit

Economists include both explicit and implicit costs when measuring a firm's cost. Accountants often

ignore implicit costs.

Larry's Lawn Care is a lawn service company that provides mowing, pruning, and weed management. Larry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?

the cost of the lease on the mower storage facility

Lucy is a young entrepreneur who sells lemonade from her lemonade stand in her driveway on Saturday afternoons. During the first hour, Lucy sells 20 glasses of lemonade and incurs an average total cost of $0.20. Lucy's _________ for the first hour are __________.

total costs; $4.00

Lucy is a young entrepreneur who sells lemonade from her lemonade stand in her driveway on Saturday afternoons. During the first hour, Lucy sells 30 glasses of lemonade and incurs an average variable cost of $0.20. Lucy's _________ for the first hour are __________.

variable costs; $6.00

Melody owns and runs a hot yoga studio. Assume that Melody has no fixed costs and that her only costs of production are the instructors she hires to teach classes. Melody's output is measured in terms of the number of students who take classes in a given week. When Melody hires one instructor, the studio's output is 300 students. When Melody hires two instructors, the studio's output is 500 students, and when Melody hires three instructors, the studio's output is 600 students. The average total cost when Melody hires two instructors is $5. What is the total cost when Melody hires two instructors?

$2,500

Refer to the table. The average variable cost of producing 3 units of output is

$26 Average variable cost is total variable cost divided by output. When no output is produced, the firm incurs only its fixed costs. In this example, the total fixed cost is $300 (total cost when output is 0). Total cost for 3 units of output is $378 and total variable cost = total cost - total fixed cost, so total variable cost = $378 − $300 = $78. Average variable cost is $78/3 = $26.

A firm produces 500 units of output at a total cost of $1,500. If total variable costs are $500, then

$3 1,500/500

The graph illustrates the firm's production function. Based on its shape, what does the corresponding total-cost curve look like?

an upward-sloping curve that increases at an increasing rate The production function exhibits diminishing marginal productivity, and the corresponding total-cost curve will increase at an increasing rate. When the marginal product of labor is diminishing, producing an additional unit of output requires a lot of additional labor and is thus increasingly costly.

Shantelle used to manage a coffee shop, earning $30,000 per year. She gave up that job to start a workout facility. In calculating the economic profit of her workout facility, the $30,000 income that she gave up is counted as part of the workout facility's

implicit costs Forgone income is an implicit cost. Implicit costs are included in economic costs but not accounting costs.

Refer to the table. Suppose that Francisco's dog walking business has a fixed cost of $100 per month. Each worker costs Francisco $100 per day. As output increases from 55 to 95, Francisco's total-cost curve

increases and gets steeper.

Gavin observes that his average variable costs of producing widgets are rising. For Gavin's firm,

marginal costs must be higher than average variable costs.

Melody owns and runs a hot yoga studio. Assume that Melody has no fixed costs and that her only costs of production are the instructors she hires to teach classes. Melody's output is measured in terms of the number of students who take classes in a given week. When Melody hires one instructor, the studio's output is 200 students. When Melody hires two instructors, the studio's output is 300 students, and when Melody hires three instructors, the studio's output is 350 students. The average total cost when Melody hires two instructors is $10. What is the total cost when Melody hires two instructors?

$3,000

Stephen makes t-shirts. If he charges $30 for each t-shirt, his total revenue will be

$3,000 if he sells 100 t-shirts.

Reece has decided to start his own brewery. To purchase the necessary equipment, Reece withdrew $20,000 from his savings account, which was earning 3% interest, and borrowed an additional $50,000 from the bank at an interest rate of 5%. What is Reece's annual opportunity cost of the financial capital that has been invested in the business?

$3,100 Reece forgoes $600 of annual interest income ($20,000 x 0.03) and pays $2,500 interest on the bank loan each year ($50,000 x 0.05), so the opportunity cost is $600 + $2,500 = $3,100.

Sami owns a cookie shop. Sami can bake 50 dozen cookies per day. She is considering hiring her husband Nevin to work for her. Nevin can bake 45 dozen cookies per day. What would be the total daily output of Sami's cookie shop if she hired her husband?

95 dozen cookies

An example of an explicit cost is forgone interest payments when the money is invested in one's business.

False

Average total cost exceeds average variable costs by the value of marginal cost.

False

Refer to the Scenario. Grace owns a pumpkin patch. One spring day, Grace spends 12 hours planting $200 worth of seeds in her pumpkin patch. She expects that the seeds she planted will yield $500 worth of pumpkins. Grace is also an avid golfer and provides golf lessons at the local country club. Grace charges $30 per hour for her golf lessons. Grace's economic profit from her pumpkin patch equals:

$ -60 Economic profit equals total revenue minus opportunity costs (explicit and implicit). Grace has $500 in revenue, $200 in explicit costs (seeds), and $360 in implicit costs (forgone income from golf lessons), so economic profit = $500 - $200 - $360 = -$60.

Frida operates Frida's FroYo and spends $1,200 per week on frozen yogurt, $18 per week on cardboard bowls, $3 per week on spoons, $77 per week on candy and other toppings, and $2,300 on rent for the storefront and equipment. Frida sells her frozen yogurt for $4 per serving and she sells 1,500 servings per week. Frida's average variable cost is about

$0.87.

Jacklyn carves ice sculptures. She carves and sells 10 sculptures. Her average cost of production per sculpture is $50. She sells each sculpture for a price of $150. Jacklyn's total profits are

$1,000 Jacklyn's total profits equal total revenues minus total costs. Total revenues equal price times quantity ($150 x 10 = $1,500). Total cost for the 10 units equals $500 (10 x $50). Total profit is $1,500 - $500 = $1,000.

If the average variable cost of producing 150 units is $3.65, the total fixed cost is $470, and the marginal cost of the 150th unit is $3.75, then the total cost of producing 150 units is

$1,017.50.

Jacklyn carves ice sculptures. She carves and sells 10 sculptures. Her average cost of production per sculpture is $50. She sells each sculpture for a price of $150. Jacklyn's total revenues are

$1,500 Jacklyn's total revenues equal price times quantity ($150 x 10 = $1,500).

Nora owns a hair salon and used $5,000 from her personal savings account to buy new equipment for the salon. The savings account paid 2% annual interest. What is Nora's annual opportunity cost of the financial capital that she invested in her salon?

$100 The annual opportunity cost of Nora's financial capital investment is equal to the $100 in forgone annual interest ($5,000 x 0.02).

Refer to the Scenario. Grace owns a pumpkin patch. One spring day, Grace spends 12 hours planting $200 worth of seeds in her pumpkin patch. She expects that the seeds she planted will yield $500 worth of pumpkins. Grace is also an avid golfer and provides golf lessons at the local country club. Grace charges $30 per hour for her golf lessons. Grace's accountant would calculate the total cost of her pumpkin patch to equal

$200 Accountants include only explicit costs. Grace has $200 in explicit costs (seeds).

Refer the Scenario: Grace owns a pumpkin patch. One spring day, Grace spends 12 hours planting $200 worth of seeds in her pumpkin patch. She expects that the seeds she planted will yield $500 worth of pumpkins. Grace is also an avid golfer and provides golf lessons at the local country club. Grace charges $30 per hour for her golf lessons. An economist would calculate Grace's total cost of her pumpkin patch to equal

$560 Economists include both explicit and implicit costs. Grace has $200 in explicit costs (seeds) and $360 in implicit cost (forgone income from golf lessons), for a total cost of $200 + $360 = $560.

Melody owns and runs a hot yoga studio. Assume that Melody has no fixed costs and that her only costs of production are the instructors she hires to teach classes. Melody's output is measured in terms of the number of students who take classes in a given week. When Melody hires one instructor, the studio's output is 400 students. When Melody hires two instructors, the studio's output is 600 students, and when Melody hires three instructors, the studio's output is 700 students. The average total cost when Melody hires two instructors is $10. What is the total cost when Melody hires two instructors?

$6000

Let L represent the number of workers hired by a firm, and let Q represent the firm's quantity of output. Assume two points on the firm's production function are (L = 15, Q = 152) and (L = 16, Q = 175). Then the marginal product of the 16th worker is

23 units of output.

Suppose a certain firm is able to produce 180 units of output per day when 12 workers are hired. The firm is able to produce 210 units of output per day when 13 workers are hired, holding other inputs fixed. The marginal product for the 13th worker is

30 units of output

Refer to the table. What is total output when 1 worker is hired?

50 units

Sami owns a cookie shop. Sami can bake 100 dozen cookies per day. She is considering hiring her husband Nevin to work for her. Together Sami and Nevin can bake 175 dozen cookies per day. What is Nevin's marginal product?

75 dozen cookies

If a firm experiences diminishing marginal productivity of labor, the total-cost curve gets flatter as the quantity of output increases

False The total-cost curve gets steeper as the quantity of output increases because of diminishing marginal product. When the marginal product of labor is diminishing, producing an additional unit of output requires a lot of additional labor and is thus increasingly costly.

Costs that do not vary with the quantity of output are called

Fixed costs

Refer to the table. What is the total output when 5 workers are hired?

Just add all 5 workers marginal product Add however many workers they say to get total output

Economists normally assume that the goal of the firm is to

Maximize profit

A farmer owns 50 bee hives. The farmer is able to produce 2,000 pounds of honey when he hires 2 workers. He is able to produce 4,000 pounds of honey when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 5,500 pounds of honey when he hires 4 workers. The marginal productivity of the third worker is 2,000 pounds (4,000 - 2,000 = 2,000). The fourth worker must increase total production by less than 2,000 pounds to illustrate diminishing marginal productivity, so the total production with 4 workers must be less than 6,000 pounds (4,000 + 2,000 = 6,000).

Refer to the table. Assume that fixed costs are $5,000, and variable costs are $250 per worker. For this firm, what are the shapes of the production function and the total-cost curve?

The production function is increasing at a decreasing rate, whereas the total-cost function is increasing at an increasing rate.

Graph is curving to the right Refer to the Figure. The graph illustrates the firm's production function. Based on its shape, the corresponding total-cost curve is an upward-sloping curve that increases at an increasing rate.

True The production function exhibits diminishing marginal productivity, and the corresponding total-cost curve will increase at an increasing rate. When the marginal product of labor is diminishing, producing an additional unit of output requires a lot of additional labor and is thus increasingly costly. Additional Resources

Stefanie borrows $10,000 from a bank and withdraws $5,000 from her personal savings to start a cupcakery. The interest rate is 5% for both the bank loan and her personal savings. Her opportunity cost of capital is $750.

True Stefanie's opportunity cost of capital is $750 ($15,000 x 0.05).

Niang owns a coffee shop. Which of the following costs would be included by an economist but not an accountant?

Wages Niang could earn giving music lessons

GianCarlo used to work as an architect for $50,000 per year but quit in order to start his own photography business. To invest in his photography business, he withdrew $20,000 from his savings, which paid 2% interest, and borrowed $40,000 from his brother, whom he pays 3% interest per year. Last year GianCarlo paid $10,000 for supplies and had revenues of $70,000. GianCarlo asked William the accountant and Henry the economist to calculate his photography business's annual costs.

William says his costs are $11,200, and Henry says his costs are $61,600.

GianCarlo used to work as an architect for $50,000 per year but quit in order to start his own photography business. To invest in his photography business, he withdrew $20,000 from his savings, which paid 2% interest, and borrowed $40,000 from his brother, whom he pays 3% interest per year. Last year GianCarlo paid $10,000 for supplies and had revenues of $70,000. GianCarlo asked William the accountant and Henry the economist to calculate his photography business's annual profit.

William says his profit is $58,800, and Henry says his profit is $8,400. Explanation: Explicit costs include cost of supplies ($10,000) and interest paid on the loan from his brother ($1,200). Implicit costs include forgone earnings as an architect ($50,000) and forgone interest on savings ($400). Accounting profit equals total revenue minus explicit costs ($70,000 - $11,200 = $58,800). Economic profit equals total revenue minus both explicit and implicit costs ($70,000 - $61,600 = $8,400).

A firm produces 500 units of output at a total cost of $1,500. If total variable costs are $500, then

average variable cost is $1.

Total Revenue is

the amount of money that a firm receives from the sale of its output.

Mitch opened a new shop that sells golf equipment and private lessons. If Mitch is a typical firm owner, he will make decisions that will result in

the greatest level of profit, even if that means higher costs.

Lucy is a young entrepreneur who sells lemonade from her lemonade stand in her driveway on Saturday afternoons. Lucy has fixed costs of $0.50 for the sign she made. During the first hour, Lucy sells 30 glasses of lemonade and incurs an average variable cost of $0.20. Lucy's _________ for the first hour are __________.

total costs; $6.50

A firm produces 500 units of output at a total cost of $1,500. If total variable costs are $500, then

we are unable to determine marginal cost from the information given.