ECO 113 Kalist Final

Marginal cost tells us the

amount by which total cost rises when output is increased by one unit

The average fixed cost curve

always declines with increased levels of output

Refer to Table 13-9. The average total cost of producing 240 units is

$0.32

Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal

$1,000

Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel is

$1.10

If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are

$100

The Flying Elvis Copter Rides: Refer to Table 13-7. What is the value of B?

$100

The Flying Elvis Copter Rides: Refer to Table 13-7. What is the value of C?

$100

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal

$110

Scenario 13-7Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Julia's economic profits are

$125,000

Scenario 13-7Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Julia's accounting profits are

$135,000

Cindy's Car Wash has average variable costs of $2 and average total costs of $3 when it produces 100 units of output (car washes). The firm's total variable cost is

$200

Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 35 chairs per hour, what is the total labor cost per hour?

$48

The Flying Elvis Copter Rides: Refer to Table 13-7. What is the value of A?

$50

The Flying Elvis Copter Rides: Refer to Table 13-7. What is the value of D?

$50

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

$60

Refer to Table 13-8. What is the marginal cost of producing the fifth unit of output?

$70

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the average variable cost at 94 units of output?

$70/94

Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya's annual opportunity cost of the financial capital that has been invested in the business?

$700

Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba's annual total profit is

$8,000

Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business

(iii) and (iv) wages and interest

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is

-$39,000.

Refer to Table 13-1. What is total output when 2 workers are hired?

75

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is

8 units of output.

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the average total cost of production when the firm hires 7 workers?

81 cents

Refer to Figure 13-4. Which of the above marginal cost curves reflects diminishing marginal product?

A (line that is going from left hand bottom corner to top right)

Refer to Table 13-18. What is the average total cost of producing 525 units of output?

ATC = TC/Q = $110/525 = $0.21.

Refer to Table 13-18. What is the average variable cost of producing 500 units of output?

AVC = VC/Q = $80/500 = $0.16.

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the total cost of production when the firm hires 7 workers?

Economists consider opportunity costs to be included in a firm's costs of production.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

Implicit Costs

The most likely explanation for economies of scale is

Specialization of labor

At what level of output will average variable cost equal average total cost?

There is no level of output where this occurs, as long as fixed costs are positive.

Refer to Table 13-18. What is the total output of five workers?

Total output of four workers = 450 + 50 = 500 units. Total output of five workers = 500 + 25 = 525 units.

A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,

average fixed cost is 50 cents.

The cost of producing the typical unit of output is the firm's

average total cost

When marginal cost exceeds average total cost,

average total cost must be rising

Constant returns to scale occur when the firm's long-run

average total costs are constant as output increases.

Total cost can be divided into two types of costs:

fixed costs and variable costs

A production function describes

how a firm turns inputs into output.

Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit.

iii only (Maximize profit)

The marginal product of labor is equal to the

increase in output obtained from a one unit increase in labor

Suppose that Christine owns her own CPA firm. She uses only two inputs in her business: her hours worked (labor) and a computer (capital). In the short run, Christine most likely considers

labor to be variable and capital to be fixed.

An example of an explicit cost of production would be the

lease payments for the land on which a firm's factory stands.

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

Which of the following is the best example of a variable cost?

monthly wage payments for hired labor

Variable cost divided by quantity produced is

none of the above are correct

Average total cost is equal to

total cost/output

In the short run, a firm incurs fixed costs

whether it produces output or not

Economic profit

will never exceed accounting profit.