The Costs of Production and Profit Maximization

According to the table, what is Kim's Shoe Shop's profit at the profit maximizing point?

$1,720

Fixed labor costs equal

$50

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Algusto's profit maximizing quantity of burritos is __________.

6,000

The marginal cost of each of the first 100 units equals

75 cents per unit

A sunk cost is a cost that has already been committed and can be recovered.

False

Consider the following decision made by New Century Power Company. In electricity production, once electricity has been generated at a power plant, distribution networks are needed to bring the electricity to the customer. Suppose New Century Power Company has decided to build its own electricity distribution network, but it has also decided to purchase electricity from many different independent electric power producers. In making this decision, New Century Power Company has calculated that diseconomies of scale or diseconomies of scope exist when electricity generation and electricity distribution are integrated under unified ownership?

diseconomies of scope

Business 1's profit maximizing quantity is 50 million units. Given this information, the price that Business 1 charges is __________ per unit.

$100

According to the table, what is the marginal revenue from selling the 20th unit?

$14

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

$15,000 - $16,000 = -$1,000

$__________ of Smith and Sons, Inc.'s fixed cost is not a sunk cost.

$150,000 - $50,000 = $100,000 Answer: $100,000

The total fixed costs of producing 2000 units is

$2,000

The total fixed costs of producing 500 blots equals

$200

According to the table, what is Davis Industries' profit at the profit maximizing point?

$28

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Augusto's Mexican Restaurant has $__________ in fixed expenses

$3,000

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

$7,500 - $9,200 = -$1,700

According to the table, what is the marginal revenue from selling the 50th unit?

$7.00 $350 - $0 = $350 50 - 0 = 50 $350 / 50 = $7 per unit

According to the table, what is the marginal cost of producing the 200th unit?

$8 $1,800 - $1,400 = $400 200 - 150 = 50 units $400 / 50 = $8 per unit

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

($12,500 - $10,000) / (5,000 - 4,000) = $2,500/1,000 = $2.50

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

($16,000 - $13,600) / (6,000 - 5,000) = $2,400/1,000 = $2.40

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

($7,400 - $5,400) / (2,000 - 1,000) = $2,000 / 1,000 = $2.00

The total variable cost of producing 400 blots equals

($74 - $50 = $24) + ($35 - $25 = $10) = $34

The marginal cost of each of the first 100 units equals

10 cents per unit

According to the table, at what quantity does Knox Industries maximize profits?

15

According to the table, at what quantity does Ohman's T-Shirt Factory maximize profits?

150

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

3000 x $2.50 = $7,500

Business 1's profit maximizing quantity is __________ million units.

50

According to the table, what is the average fixed cost at unit 40?

50 cents

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

7000 x $2.50 = $17,500

The marginal cost of each unit between units 200 and 300 equals

8 cents per unit

Business 2's profit maximizing quantity is __________ million units

80

Business 1 or Business 2 is operating in a perfectly competitive market?

Business 1

Which business has constant economies of scale?

Business A

Which business has economies of scale?

Business B

Which business has diseconomies of scale?

Business C

Which business has economies of scale and diseconomies of scale?

Business D

At EYZ Corporation, a larger quantity of output means that individual workers can limit themselves to more specialized tasks and through this process they become more skilled and efficient at doing their specialized tasks. Does this concept of economies of scope or the concept of economies of scale best capture what is happening at EYZ Corporation?

Economies of scale

In a Wall Street Journal article it was reported that "Mitsubishi Motors is seeking a buyer for its U.S. operations, a move that may well signal the company's intent to exit the world's largest car market." The potential move by Mitsubishi is a matter of economies of scale or economies of scope?

Economies of scale

Banks and insurers both need distribution networks to sell products and serve their customers. Bank of America sells both insurance and banking services. Does the concept of economies of scope of the concept of economies of scale explain the business decision to combine banking and insurance services at Bank of America?

Economies of scope

Consider the following decision made by Old Century Power Company. In electricity production, once electricity has been generated at a power plant, distribution networks are needed to bring electricity to the customer. Suppose Old Century Power Company has decided to build its own electricity generating plants and its own electricity distribution network. In making this decision, Old Century Power Company has calculated that economies of scale or economies of scope exist when electricity generation and electricity distribution are integrated under unified ownership?

Economies of scope

A business should shut down if production at the profit maximizing quantity generates total revenues that are less than total fixed costs.

False

The profit maximizing rule states that a business maximizes profits when it produces where marginal revenue equals average variable cost.

False

The profit maximizing rule states that a business maximizes profits when it produces where total revenue equals total revenue equals total cost.

False

When an organization can produce several different products together at greater cost than could a group of single product firms operating independently, then the organization has economies of scale.

False

According to the table, which firm has constant economies of scale over the entire range of output?

Firm 4

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Algusto's Mexican Restaurant is operating in the short or long run.

Short run

Smith and Sons, Inc. is currently operating in the short run or in the long run?

Short run

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Algusto's Mexican Restaurant should:

Stay open

Smith and Sons, Inc., should:

Stay open and continue operating at their profit maximizing level of production

Consider the following production cost and revenue data for burritos at Algusto's Mexican Restaurant. Algusto can produce in 1,000 unit increments. Fill in the empty cell in the production cost and revenue data table for Algusto's Mexican Restaurant.

Total Cost =total revenue - profit TC = $0 - (-$3,000) = $3,000

The profit (or loss) at the current level of production is __________ (use a negative sign if a loss)

Total revenue - total cost = $550,000 - $650,000 = -$100,000 Answer: -$100,000

A fixed cost is a cost that does not vary with changes in the quantity produced.

True

A production process has diseconomies of scale if average total costs increase as output increases.

True

A production process has economies of scale if average total cost decreases as production increases.

True

If a company's average total costs remains constant as output increases, the the company has constant economies of scale.

True

Marginal cost is the increase in total cost that arises from an extra unit of production.

True

A production process has constant economies of scale if

average total cost does not change as production increases.

The accountants hired by Bling, Blong & Blatt Law Firm have calculated that at the profit maximizing quantity total fixed costs equal $56,272,000 total variable costs equal $213,235,000 and total revenue equals $213,236,000. Because of this information, Bling, Blong & Blatt Law Firm decides

decides to stay open because shutting down would be more expensive

The accountants hired by Costa, Costa & Costa Law Firm have calculated that at the profit maximizing quantity, total fixed costs equal $56,791, total variable costs equal $113,555, and total revenue equals $112,000. Because of this information, Costa, Costa & Costa Law Firm decides:

to shut down