Problem Set #7: The Costs of Production (Costs)

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 5 percent interest. She also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business? a. $4,000 b. −$56,000 c. $19,000 d. −$6,000

a. $4,000

Refer to Figure 13-3. Which of the following can be inferred from the figure above? a. Marginal product is increasing at low level of output and decreasing at high level of output. b. Marginal cost is increasing at all levels of output, and marginal product is decreasing at high level of output. c. Marginal product is increasing at all levels of output. d. Marginal cost is increasing at all levels of output, and marginal product is increasing at low levels of output.

a. Marginal product is increasing at low level of output and decreasing at high level of output.

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100, a. average variable cost is $3. b. average fixed cost is $10. c. average total cost is $4. d. average total cost is $5.

a. average variable cost is $3.

Scenario 13-3 Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. Refer to Scenario 13-3. Ziva's economic profit from farming equals: a. −$80. b. $130. c. $170. d. −$130.

a. −$80.

Refer to Table 13-3. At which number of workers does diminishing marginal product begin? a. 3 b. 2 c. 4 d. 1

b. 2

Refer to Table 13-6. Bobby pays all his workers the same wage, and labor is his only variable cost. From this information we can conclude that Bobby's average variable cost decreases: a. as output rises from 0 to 33, but increases after that. b. as output rises from 0 to 26, but rises after that. c. continually as output rises. d. as output rises from 0 to 10, but rises after that.

b. as output rises from 0 to 26, but rises after that.

Refer to Figure 13-2. Curve D is increasing because: a. of increasing marginal product. b. of diminishing marginal product. c. marginal product first increases, then decreases. d. marginal product first decreases, then increases.

b. of diminishing marginal product.

Refer to Table 13-8. What is the shape of the marginal cost curve for this firm? a. downward-sloping b. upward-sloping c. U-shaped d. constant

b. upward-sloping

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 a. $100 b. $90 c. $110 d. $80

c. $110

Refer to Table 13-3. The marginal product of the second worker is: a. 85 units. b. 90 units. c. 80 units. d. 20 units.

c. 80 units.

Marginal cost is equal to average total cost when: a. average fixed cost is rising. b. average variable cost is falling. c. average total cost is at its minimum. d. marginal cost is at its minimum.

c. average total cost is at its minimum.

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct? a. Bev's accounting profits exceed her economic profits by $300. b. Bev's total implicit costs are $300. c. Bev's total explicit costs are $26,300. d. Bev's economic profit is $3,700.

d. Bev's economic profit is $3,700.

When marginal cost is less than average total cost, a. average variable cost must be falling. b. average total cost is rising. c. marginal cost must be falling. d. average total cost is falling

d. average total cost is falling

Refer to Table 13-4. Suppose that Charles's math tutoring company has a fixed cost of $50 per month for his cell phone. Each worker costs Charles $60 per day. As output increases from 45 to 70 students, Charles's total cost curve: a. decreases but gets steeper. b. decreases and gets flatter. c. increases but gets flatter. d. increases and gets steeper

d. increases and gets steeper

Scenario 13-4 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-4. Farmer Brown's total-cost curve is: a. increasing at a decreasing rate. b. decreasing. c. increasing at a constant rate. d. increasing at an increasing rate.

d. increasing at an increasing rate.