Micro Chapter 9 - Quiz and Homework Questions
1. Which of the following statements is true? (multiple choice question) 2. Why do economists classify normal profits as costs? (multiple choice question)
1. Accounting profit equals revenue minus explicit costs. 2. A normal profit is the amount required to ensure continued supply of the product
1. Which of the following statements is true regarding the costs associated with owning and operating an automobile? 2. You are considering whether to drive your car or fly 1,000 miles to Florida for spring break. Which costs would you take into account in making your decision?
1. Fixed costs include insurance, and variable costs include gasoline. 2. The variable costs of the trip, the opportunity cost of your time, and the need for transportation in Florida
1. Explicit costs are payments the firm makes for: (multiple choice question) 2. The explicit costs of going to college include: (multiple choice question)
1. inputs such as wages and salaries to employees, whereas implicit costs are non-expenditure costs that occur through the use of self-owned resources such as forgone income. 2. the cost of tuition and books, while implicit costs include forgone income
Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spendterm-5s $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000.
Calculate the accounting profit and the economic profit for Gomez's pottery firm. Accounting profit = $35,000 Economic profit = $13,000
Classify the following as fixed or variable costs:
Fuel - Variable costs Interest on company-issued bonds - Fixed costs Shipping charges - Variable costs Payments for raw materials - Variable costs Real estate taxes - Fixed costs Executive salaries - Fixed costs Insurance premiums - Fixed costs Wage payments - Variable costs Depreciation and obsolescence charges - Fixed costs Sales taxes - Variable costs Rental payments on leased office machinery - Fixed costs
Which of the following are short-run adjustments, and which are long-run adjustments?
a. Wendy's builds a new restaurant: Long-run adjustment b. Harley-Davidson Corporation hires 200 more production workers: Short-run adjustment c. A farmer increases the amount of fertilizer used on his corn crop: Short-run adjustment d. An Alcoa aluminum plant adds a third shift of workers: Short-run adjustment
Suppose a firm is producing in the long run. When it produces 4,000 units of output, its total cost is $8,000. When it produces 4,200 units of output, its total cost is $8,200, and when it produces 4,400 units of output, its total cost is $8,800. This firm is experiencing __________ returns to scale.
increasing, then decreasing
Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients, the bottles, and the labels was $700. In addition, it took her 20 hours to make the ketchup, and to do so she took time off from a job that paid her $20 per hour.
Linda's accounting profit is ($300) Linda's economic profit is (-$100)
There are economies of scale in ranching, especially with regard to fencing land. Suppose that barbed-wire fencing costs $10,000 per mile to set up.
a. How much would it cost to fence a single property whose area is one square mile if that property also happens to be perfectly square, with sides that are each one mile long? $40,000 b. How much would it cost to fence exactly four such properties, which together would contain four square miles of area? $160,000 c. Now consider how much it would cost to fence in four square miles of ranch land if, instead, it comes as a single large square that is two miles long on each side. $80,000 d. Which is more costly—fencing in the four, one-square-mile properties or the single four-square-mile property? Four, one-square-mile properties
You are a newspaper publisher. You are in the middle of a one-year factory rental contract that requires you to pay $500,000 per month, and you have contractual salary obligations of $1 million per month that you can't get out of. You also have a marginal printing cost of $0.25 per paper as well as a marginal delivery cost of $0.10 per paper.
a. If sales fall by 20 percent from 1 million newspapers per month to 800,000 newspapers per month, what happens to the AFC per newspaper? - AFC per newspaper RISES from $1.50 to $1.88 b. What happens to the MC per newspaper? - MC per newspaper DOES NOT CHANGE c. What happens to the minimum amount that you must charge to break even? - It RISES from $1.85 to $2.23
Imagine you have some workers and some handheld computers that you can use to take inventory at a warehouse. There are diminishing returns to taking inventory. If one worker uses one computer, he can inventory 100 items per hour. Two workers sharing a computer can together inventory 150 items per hour. Three workers sharing a computer can together inventory 160 items per hour. And four or more workers sharing a computer can together inventory fewer than 160 items per hour. Computers cost $100 each and you must pay each worker $25 per hour.
a. If you assign one worker per computer, what is the cost of inventorying a single item? $1.25 b. What is the cost if you assign two workers per computer? $1 What if you assign three? $1.09 c. How many workers per computer should you assign if you wish to minimize the cost of inventorying a single item? 2 workers
