Chapter 13

The Bow Wow company produced and sold 400 dog beds. The average cost ofproduction per dog bed was $40. Each dog bed can be sold for a price of $75.Bow Wow's total costs are $30,000 $16,000 $46,000 $17,500

$16,000

Suppose that for a particular firm the only variable input into the production process islabor and that output equals zero when no workers are hired. In addition, suppose thatwhen four units of output are produced, the total cost is $175, and the average variablecost is $33.75. What would the average fixed cost be if ten units were produced? $135 $40 $4 $10

$4

Diamond is an organic brocolli farmer, but she also spends part of her day as aprofessional organizing consultant. As a consultant, Diamond helps people organize theirhouses. Due to the popularity of her home-organization services, Farmer Diamond hasmore clients requesting her services than she has time to help if she maintains herfarming business. Farmer Diamond charges $45 an hour for her home-organizationservices. One spring day, Diamond spends 8 hours in her fields planting $130 worth ofseeds on her farm. She expects that the seeds she planted will yield $300 worth ofbrocolli. Refer to Scenario 13-3. What is the total opportunity cost of the day that FarmerDiamond spent in the field planting brocolli? $490 $300 $360 $130

$490

A firm is producing 20 units with an average total cost of $25 and a marginal cost of $15. If it increases production to 21 units, which of the following must occur? a. Marginal cost will decrease. b. Average total cost will increase. c. Marginal cost will increase. d. Average total cost will decrease.

d. Average total cost will decrease.

Which of the following is a variable cost in the short run? a. Salaries paid to upper management b. Rent on the factory c. Payment on the lease for factory equipment d. Wages paid to factory labor e. Interest payments on borrowed financial capital

d. Wages paid to factory labor

If Boeing produces 9 jets per month, its long-run total cost is $9 million per month. If it produces 10 jets per month, its long-run total cost is $11 million per month. Boeing exhibits a. economies of scale. b. falling marginal cost. c. rising marginal cost. d. diseconomies of scale.

d. diseconomies of scale.

Diminishing marginal product explains why, as a firm's output increases, a. the production function and total-cost curve both get steeper. b. the production function and total-cost curve both get flatter. c. the production function gets steeper, while the total-cost curve gets flatter. d. the production function gets flatter, while the total-cost curve gets steeper.

d. the production function gets flatter, while the total-cost curve gets steeper.

Scenario 13-4 - If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag ofseeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-4. Farmer Brown's production function exhibits increasing marginal product. constant marginal product. diminishing marginal product. The production function is unrelated to the marginal product.

diminishing marginal product.

average fixed cost

fixed cost divided by the quantity of output

implicit costs

input costs that do not require an outlay of money by the firm

marginal product

the increase in output that arises from an additional unit of input

marginal cost

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

total cost

the market value of the inputs a firm uses in production

economies of scale

the property whereby long-run average total cost falls as the quantity of output increases

diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

constant returns to scale

the property whereby long-run average total cost stays the same as the quantity of output changes

diminishing marginal product

the property whereby the marginal product of an input declines as the quantity of the input increases

efficient scale

the quantity of output that minimizes average total cost

production function

the relationship between the quantity of inputs used to make a good and the quantity of output of that good

average total cost

total cost divided by the quantity of output

profit

total revenue minus total cost

economic profit

total revenue minus total cost, including both explicit and implicit costs

accounting profit

total revenue minus total explicit cost

average variable cost

variable cost divided by the quantity of output

Which of the following is an example of an implicit cost? Interest paid on the firm's debt Rent paid by the firm to lease office space Wages paid to workers The owner of a firm forgoing an opportunity to earn a large salary workingfor a Wall Street brokerage firm

The owner of a firm forgoing an opportunity to earn a large salary workingfor a Wall Street brokerage firm

True or False: If long-run average total cost is rising, then the firm is experiencing economies of scale.

False

True or False: In the short run, if a firm produces nothing, total costs are zero.

False

True or False: Variable costs equal fixed costs when nothing is produced.

False

explicit costs

Input costs that require an outlay of money by the firm

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? -Shoe polish and wages Pete could earn delivering newspapers -Wages Pete could earn delivering newspapers and interest that Pete's moneywas earning before he spent his savings to set up the shoe-shine business -Rent on the shoe stand and interest that Pete's money was earning before hespent his savings to set up the shoe-shine business -Shoe polish and rent on the shoe stand

Shoe polish and rent on the shoe stand

True or False: As a firm moves along its long-run average cost curve, it is adjusting the size of itsfactory to the quantity of production.

True

True or False: Assume Jack received all As in his classes last semester. If Jack gets all Bs in his classesthis semester, his GPA may or may not fall.

True

True or False: The average-total-cost curve reflects the shape of both the average-fixed-cost andaverage-variable-cost curves.

True

True or False: The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

True

If a firm produces nothing, which of the following costs will be zero? Total cost Opportunity cost Fixed cost Variable cost

Variable cost

If there are implicit costs of production, a. accounting profit will exceed economic profit. b. economic profit will exceed accounting profit. c. economic profit will always be zero. d. accounting profit will always be zero. e. economic profit and accounting profit will be equal.

a. accounting profit will exceed economic profit.

When marginal costs are below average total costs, a. average total costs are falling. b. average total costs are rising. c. average fixed costs are rising. d. average total costs are minimized.

a. average total costs are falling.

If marginal costs equal average total costs, a. average total costs are minimized. b. average total costs are falling. c. average total costs are rising. d. average total costs are maximized.

a. average total costs are minimized.

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will a. be U-shaped. b. be flat (horizontal). c. slope downward. d. slope upward.

a. be U-shaped.

In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience a. economies of scale. b. constant returns to scale. c. an increase in average total costs. d. diseconomies of scale.

a. economies of scale.

Accounting profit is equal to total revenue minus a. explicit costs. b. implicit costs. c. variable costs. d. the sum of implicit and explicit costs. e. marginal costs.

a. explicit costs.

Economic profit is equal to total revenue minus a. the sum of implicit and explicit costs. b. variable costs. c. explicit costs. d. marginal costs. e. implicit costs.

a. the sum of implicit and explicit costs.

Farmer McDonald gives banjo lessons for $20 per hour. One day, he spends 10 hours planting $100 worth of seeds on his farm. What total cost has he incurred? a. $100 b. $400 c. $300 d. $200

c. $300

Xavier opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Xavier earns an accounting profit of _____ and an economic profit of ____. a. $90, $50 b. $50, $90 c. $50, $10 d. $10, $50

c. $50, $10

Which of the following statements is true? a. All costs are fixed in the long run. b. All costs are variable in the short run. c. All costs are variable in the long run. d. All costs are fixed in the short run.

c. All costs are variable in the long run.

The efficient scale of production is the quantity of output that minimizes a. average variable cost. b. average fixed cost. c. average total cost. d. marginal cost.

c. average total cost.

fixed costs

costs that do not vary with the quantity of output produced

variable costs

costs that vary with the quantity of output produced

Bev is opening her own court-reporting business. She financed the business bywithdrawing 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. Inher first year, Bev's revenues were $30,000, and she spent $1,000 on materials andsupplies. Which of the following statements is correct? Bev's total explicit costs are $26,300. Bev's accounting profits exceed her economic profits by $300. Bev's economic profit is $3,700. Bev's total implicit costs are $300.

Bev's economic profit is $3,700.

Use the following information to answer question. Madelyn owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for $100 each. It costs Madelyn $20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested $100,000 in her factory and equipment: $50,000 from her savings and $50,000 borrowed at 10 percent (assume that she could have loaned her money out at 10 percent, too). Madelyn can work at a competing pottery factory for $40,000 per year. The economic profit at Madelyn's pottery factory is a. $70,000. b. $30,000. c. $75,000. d. $35,000. e. $60,000.

b. $30,000.

Use the following information to answer question. Madelyn owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for $100 each. It costs Madelyn $20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested $100,000 in her factory and equipment: $50,000 from her savings and $50,000 borrowed at 10 percent (assume that she could have loaned her money out at 10 percent, too). Madelyn can work at a competing pottery factory for $40,000 per year. The accounting profit at Madelyn's pottery factory is a. $80,000. b. $75,000. c. $70,000. d. $35,000. e. $30,000.

b. $75,000.

Farmer Greene faces diminishing marginal product. If she plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 3 bushels of wheat. If she plants 2 bags, she gets 5 bushels. If she plants 3 bags, she gets a. 9 bushels. b. 6 bushels. c. 8 bushels. d. 7 bushels.

b. 6 bushels.

The government imposes a $1,000 per year license fee on all pizza restaurants. As a result, which cost curves shift? a. average variable cost and marginal cost b. average total cost and average fixed cost c. average variable cost and average fixed cost d. average total cost and marginal cost

b. average total cost and average fixed cost

If a production function exhibits diminishing marginal product, its slope a. is linear (a straight line). b. becomes flatter as the quantity of the input increases. c. could be any of the above. d. becomes steeper as the quantity of the input increases.

b. becomes flatter as the quantity of the input increases.

If a production function exhibits diminishing marginal product, the slope of the corresponding total-cost curve a. could be any of the above. b. becomes steeper as the quantity of output increases. c. is linear (a straight line). d. becomes flatter as the quantity of output increases.

b. becomes steeper as the quantity of output increases.

If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost. a. diseconomies, falling b. economies, falling c. economies, rising d. diseconomies, rising

b. economies, falling

A firm is producing 1,000 units at a total cost of $5,000. When it increases production to 1,001 units, its total cost rises to $5,008. For this firm, a. marginal cost is $5, and average variable cost is $8. b. marginal cost is $8, and average total cost is $5. c. marginal cost is $5, and average total cost is $8. d. marginal cost is $8, and average variable cost is $5.

b. marginal cost is $8, and average total cost is $5.

In the long run a company that produces and sells popcorn incurs total costs of $1,150when output is 60 canisters and $1,100 when output is 90 canisters. The popcorncompany exhibits economies of scale because total cost is rising as output rises. diseconomies of scale because total cost is rising as output rises. diseconomies of scale because average total cost is rising as outputrises. economies of scale because average total cost is falling as outputrises.

economies of scale because average total cost is falling as output rises.

A firm's opportunity costs of production are equal to its: explicit costs + implicit costs + total revenue. explicit costs only. explicit costs + implicit costs. implicit costs only.

explicit costs + implicit costs.