CH.7

Reggie owns and operates a cheese shop in the village of somerset. although reggie has a degree in mechanical engineering and could easily go to work for his brothers company earning $72,000 a year, his true passion is for cheese. consider the list of reggies revenue and expenses from last year. What is Reggies accounting profit? What is Reggies economic Profit?

1. $60,000 2. -$12,000

Eddies electrons sells laptop computers for $375 each. At this price, the store sells 325 laptops. eddies electronics incurs a $346 cost for each laptop it sells. Assume that this is the stores only cost. Round to nearest dollar. 1. What is eddies electronics revenue? 2. What is eddies electronics profit?

1. 121,875 2. 9425 Solution: Revenue=375 x 325= 121,875 Total cost= 346 x 325= 112,450 Profit= 121,875-112,450= 9,425

Reggie owns and operates a cheese shop in the village of somerset. while reggie has a degree in mechanical engineering & could easily go to work for his brothers company earning $80,000/year, his true passion is for cheese. the table displays Reggie's expenses from 2018. what is Reggie's accounting profit? What is Reggie's economic profit?

1. 66,000 2. -14,000 Solution: Revenue-explicit costs = accounting profit Accounting profit- Implicit costs= Economic Profit or Revenue-Explicit costs-Implicit costs=Economic Profit

What would be the minimum and Maximum number of firms you would expect to be in the industry under the following conditions: 1. Demand is 12 million units 2. Demand is 40,000 units

1. Max= 400 Min= 300 2. Min= 1 Max= 1

Farmer Old Macdonald wishes to choose the most cost effective way of harvesting his quinoa crop. Has 3 options for production technology, each with a different combination of machinery and labor, as shown in the table. 1. If workers cost $2,000 to hire for the harvest season and harvesting machines cost $4,000, which production technology would Farmer Mac choose to minimize costs 2. If workers wages increase to $3000 per season and the cost of machines stayed the same, which option would the farmer choose.

1. Production tech 2 2. Production tech 3

New suit Soloman bought for his upcoming interview The Nacho cart Jay bought to open up a snack stand outside the local high school The internet access Eileen purchases so she can begin an online company selling homemade macaroni crafts

Accounting & Economic Cost

VC/Q The sum of all costs that change as output changes divided by the number of units produced

Average Variable Costs

TC/Q Total cost divided by quantity of output

Average total cost

Economic costs and accounting costs differ because economists include

Both explicit & implicit costs

The salary Jacob as a dentist that he gave up to become a plumber The unpaid leave brianna took so she can line up for the release of the next book in her favorite series The hour of class Travis missed so he could sleep in this morning

Economic Cost

Margaret owns a stuffed animal shop. At first, it is just her daughter Allison and her hand sewing stuffed bears, stuffed sharks and stuffed giraffes in the spare bedroom. Over time, Margaret decided to rent a larger shop and hire more workers to help out, increasing to a staff of 20 people. Everything is still hand sewn. She notices, however, that her stuffed animal output increased much more than tenfold despite her work force increasing by that amount. However, any more than 20 workers slows down production. This is an example of..

Economies of scale

Supplies like sugar, butter, and baking trays the money they pay their neighbors 6 year old son to deliver cupcakes to their customers advertising space taken out on a social networking website

Explicit Costs

Average fixed cost is always higher than average variable cost The ATC crosses the MC at the lowest point on the MC The ATC is rising when the MC is below the ATC The ATC is increasing whenever the MC is increasing TC=FC+VC+MC

False

Lease on building Industrial equipment costs Interest on current debt liability insurance costs annual salaries of top management

Fixed Costs

A firms ________ are costs that are incurred even if there is no output. In the short run, these costs _____ as production increases.

Fixed Costs; Do Not change

The Garage space used for baking that can no longer be rented out to a college student The salary Alex earned in his previous job designing lighting fixtures

Implicit Costs

The amount by which total cost increases when an additional unit is produced Change in total cost divided by change in output

Marginal Cost

At an average total cost of $8 with nothing demanded at other prices, what would be the maximum and minimum number of manufacturing firms if demand was 600,000 units?

Minimum:20 Maximum: 60 Solution: An efficient plant will produce a minimum of 10,000 and a maximum of 30,000 units of output. If demand is 600,000, then the minimum number of manufacturing plants in the industry will be 20. Minimum number of plants= Demand/Max output = 600,000/30,000 = 20 firms The max will be 60 Max # of plants= Demand/ Min output = 600,000/10,000 = 60 Firms

Economic costs and accounting costs differ because accountants include

Only explicit costs

All costs are either fixed or variable when fixed costs are positive, the average fixed cost curve is downward-sloping The ATC is always greater than or equal to AVC ATC= FC+VC/Q MC refers to the change in total cost associated with the production of another unit

True

Economic Profit is

Typically lower than accounting profit

Cost of metal used in manufacturing cost of wood used in manufacturing postage and packaging costs

Variable Costs

A firms _______ are costs that increase as quantity produced increases. These costs often show ____ by increasing at an increasing rate.

Variable Costs; Diminishing Marginal returns

Calculating Profit

profit= (price) X (Quantity)- (Average Cost) x (Quantity)