ECON 2302 - Ch. 7 Production & Costs (LC & HW)

Suppose that the price of a coffee table is $85/table. Jim-Bob will sell 100 coffee tables at the flea market this month. It costs Jim-Bob $50 in materials and supplies to make each coffee table and $150/month to rent space at the flea market. These are all of Jim-Bob's costs. How much profit will Jim-Bob make at the flea market this month? Do not round your answer.

$3350

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Annual salaries of top management:

fixed cost

Suppose Ted's Lawn Care hires a new employee. If the company sees total output decreases, there are _________________ marginal returns.

negative (there are negative marginal returns when adding a worker results in decrease in total output)

Determine whether each of the given statements describes a short‑run period, a long‑run period, or neither. This lasts at least six months but no longer than one year.

neither

Economic costs and accounting costs differ because accountants include:

only explicit costs.

One thing that distinguishes the short run and the long run is:

the existence of at least one fixed input.

The marginal cost curve often decreases at first and then starts to increase. This is explained by:

the law of diminishing returns

If Carolyn owns $10,000 worth of stock in Omega Constructions and Omega loses a lawsuit for $50 million, What is the greatest amount that Carolyn can lose in that suit?

$10,000 (In a corporation, the stockholders risk is limited to loss of their investment)

Suppose that the price of a coffee table is $85/table. Jim-Bob will sell 100 coffee tables at the flea market this month. It costs Jim-Bob $50 in materials and supplies to make each coffee table and $150/month to rent space at the flea market. These are all of Jim-Bob's costs. How much will Jim-Bob make in total revenue this month? Do not round your answer.

$8500

Wilco Manufacturing has total variable costs of $100,000 when the output is 50,000 units. When output is increased to 75,000 units, the total variable cost increases to $125,000. What is Wilco Manufacturing's per unit marginal cost of producing the additional values?

(125,000 - 100,000) / (75,000 - 50,000) = 1/1 = 1 $1

Ted's Lawn Care hires another employee to mow lawns. After this employee starts working, the company's production increases from 200 to 220 lawns mowed each week. What is the marginal product in this case?

(220 - 200)/1 = 20/1 = 20 MP = 20

On your way home from Super Groceries, your car breaks down. It is a hot summer day and you have nobody to call. With little time before the food spoils, you decide to prioritize what to carry on the walk home. You choose to take three items with you. Since you will need all five items today, you will replace the two abandoned items at the corner store near your house, Convenient Grocers. The table contains the prices you paid for each good at Super Groceries and the prices you will need to pay at Convenient Grocers to replace the goods. Which three items should you save?

- beef - eggs - vegetables

Classify whether each of the given statements describes marginal product, average product, or diminishing returns. An additional worker adds less to total output than the previous worker hired.

diminishing returns

Candice is a jewelry shop owner, specializing in beaded necklaces. For each of the following inputs, indicate which items are variable inputs as opposed to fixed inputs in the long run. Variable inputs include:

- shipping - chairs - beads - computers - hourly labor - upper management salaries - two-year lease on office and retail space

Use the table to answer the questions. What is the average product of the third unit of labor?

5

Use the table to answer the questions. What is the marginal product of the third unit of labor?

6

What is the average product when the sixth employee is hired? L : 6 / 7 TP: 46 / 52

7.66 (average product is calculated by amount of labor => 46/7 = 7.66)

The statements describe either sole proprietorships, partnerships, or corporations. Match each statement to the appropriate term. It is argued that this form of business contributes the most to increases in the nation's output (GDP):

Corporation

The statements describe either sole proprietorships, partnerships, or corporations. Match each statement to the appropriate term. Limited Liability encourages investors to invest large amounts of money in this form of business:

Corporation

The statements describe either sole proprietorships, partnerships, or corporations. Match each statement to the appropriate term. Shareholders are the owners of this form of business:

Corporation

Determine whether each of the given statements describes a short‑run period, a long‑run period, or neither. In order to produce more cookies, Mrs. Meadows asks her third shift to work overtime:

short run

Determine whether each of the given statements describes a short‑run period, a long‑run period, or neither. Purpleberry Frozen Custard has $11,000 of fixed costs and $45,000 of variable costs.

short run

Determine whether each of the given statements describes a short‑run period, a long‑run period, or neither. This is a period of time during which a firm is unable to increase or decrease its amount of capital.

short run

Which of these examples is an implicit cost?

the capital invested in a business that could be returning dividends and capital gains through the purchase and sale of stockr in other enterprises.

Which of these are implicit costs?

the salary and benefits the owner could have earned in her former profession

Natalie and Hamza are preparing to open a burger joint called "Natalie and Hamza's Burgers and More Burgers." They are still unclear about the various types of business organizations. Answer the questions to clarify the differences between business organizations. Which business organization typically has a single owner that has unlimited liability?

Sole Proprietorship

_________________ marginal returns occurs when a new worker adds more to total output than the previous new worker does.

Increasing

The statements describe either sole proprietorships, partnerships, or corporations. Match each statement to the appropriate term. Ownership is distributed among a small number of people. This type of business is subject to unlimited liability:

Partnership

The statements describe either sole proprietorships, partnerships, or corporations. Match each statement to the appropriate term. Most American businesses are this form:

Sole Proprietorship

The graph depicts the long‑run average total cost curve (LRATC) for a firm and some possible short‑run average total cost curves (SRATC). Given the LRATC curve, which SRATC curve could NOT be part of the firm's cost structure?

SRATC 2

The graph depicts the long‑run average total cost curve (LRATC) for a firm and some possible short‑run average total cost curves (SRATC). Which of the three types of scale does the LRATC curve exhibit between points B and C?

constant returns to scale

Slider owns a hamburger restaurant. Slider's minimum average variable cost is $10 at a quantity of 100 hamburgers, and his minimum average total cost is $15 at a quantity of 200 hamburgers. His total fixed cost is $300. Use this information to answer the questions. What is Slider's AVC when he sells 200 hamburgers?

Slider's AVC: $13.5

Steve and Carrie are partners in a business. Steve has accrued $40,000 in debt for the partnership, and Carrie has accrued $25,000 in debt for the partnership. If Carrie decides to leave the country permanently, how much of the total debt is Steve liable for?

$65,000 (each partner in a partnership is subject to unlimited liability for company debt)

Ted's Lawn Care has total costs of $500,000 and an output of 50,000 units. What is Ted's Lawn Care's average total cost?

ATC = 500,000/50,000 ATC = $10

TC / Q:

Average total cost

The total cost divided by the quantity of output:

Average total cost

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

Average variable cost

VC / Q:

Average variable cost

Classify each statement as related to economies of scale, constant returns to scale, or diseconomies of scale. A 50 percent increase in inputs results in a 50 percent increase in outputs:

Constant returns to scale

Natalie and Hamza are preparing to open a burger joint called "Natalie and Hamza's Burgers and More Burgers." They are still unclear about the various types of business organizations. Answer the questions to clarify the differences between business organizations. Which business organization can raise capital by issuing stock?

Corporation

Classify each statement as related to economies of scale, constant returns to scale, or diseconomies of scale. A 50 percent increase in inputs results in a less than 50 percent increase in outputs:

Diseconomies of scale

Classify each statement as related to economies of scale, constant returns to scale, or diseconomies of scale. Also known as decreasing returns to scale:

Diseconomies of scale

_________________ costs are the sum of explicit and implicit costs.

Economic

Classify each statement as related to economies of scale, constant returns to scale, or diseconomies of scale. A 50 percent increase in inputs results in a greater than 50 percent increase in outputs:

Economies of scale

Classify each statement as related to economies of scale, constant returns to scale, or diseconomies of scale. Also known as increasing returns to scale:

Economies of scale

Which of these statements are NOT true about economic profit?

In order to sustain a business in the long run, economic profit must be greater than zero.

Wilco Manufacturing has made the decision to increase output. What will happen to the average fixed cost as the output increases?

It will decrease

Wilco Manufacturing has made the decision to increase output. What will happen to the average variable cost as output increases?

It will decrease to a certain point and then it will increase.

A company has diminishing marginal returns. Total production is 10 units when the first worker is hired. Total production rises to 15 units when the second worker is hired. What happens to total production when the third worker is hired if the company continues to have diminishing marginal returns?

MP = 5 and AP = 7.5 Total production is in between 16 and 19 units. (Hiring a 2nd worker yields MP = 5 and AP = 7.5. Total production is between 16 to 19 units meaning marginal product is between 1 to 4 units, indicating decreasing marginal returns.)

The amount by which total cost increases when an additional unit is produced:

Marginal cost

The change in total cost divided by the change in output:

Marginal cost

ΔTC / ΔQ:

Marginal cost

Betsy's Bangles produces and sells woven bracelets. The table shows information about the number of workers employed, daily bracelet production, and the marginal product of labor (MPL)(MPL) . Use this to answer the questions. You must calculate the bracelet values that are absent to answer the question. Between which levels of bracelet production does Betsy's firm experience increasing marginal returns and diminishing marginal returns?

Marginal returns increase from 0 to 37 bracelets, then diminish from 51 to 61 bracelets.

Use the information in the table to answer the two questions that follow about Monster's Ink, a tattoo shop. Which of the following best describes the economic reasoning behind the fact that the marginal physical product of labor declines as more labor is employed, with other inputs held constant?

Monster's Ink is experiencing diminishing returns, possibly caused by three workers getting in each other's way and needing to share tools (after sanitization, of course).

Natalie and Hamza are preparing to open a burger joint called "Natalie and Hamza's Burgers and More Burgers." They are still unclear about the various types of business organizations. Answer the questions to clarify the differences between business organizations. Which business organization has unlimited liability and more than one owner?

Partnership

A company has increasing marginal returns. Total production is 10 units when the first worker is hired. Total production rises to 22 units when the second worker is hired. What must happen to total production when the third workers hired to maintain increasing marginal returns?

Total production must be 35 or more units. (2nd worker yields MP = 12 and AP = 11, firm much increase total output at 13 units)

Which of these examples is a fixed cost?

a one-year lease on a building

Profit can be measured a(n) __________________ approach or an economic approach.

accounting

What is the primary difference between accounting profits and economic profits? The primary difference is that:

accounting profits ignore implicit costs; economic profits consider them.

Portia owns and manages a sporting apparel company. Consider the given average cost (AC), average variable cost (AVC), and marginal cost (MC) curves for track suits. All but the MC curve have been placed incorrectly. Portia knows that the minimum average cost for a track suit is $7 and the minimum of average variable cost is $5. Rearrange the AC and AVC curves so that they are consistent with the marginal cost curve. If the average fixed cost curve is added to the graph, its shape would be:

always decreasing.

Classify whether each of the given statements describes marginal product, average product, or diminishing returns. This is total output divided by the number of workers.

average product

Classify whether each of the given statements describes marginal product, average product, or diminishing returns. When eight weavers are employed, and output if 80 baskets ___________________ is equal to 10 baskets.

average product

Economic costs and accounting costs differ because economists include:

both explicit and implicit costs.

Betsy's Bangles produces and sells woven bracelets. The table shows information about the number of workers employed, daily bracelet production, and the marginal product of labor (MPL)(MPL) . Use this to answer the questions. You must calculate the bracelet values that are absent to answer the question. How many bracelets can be produced by 5 workers?

bracelets from 5 workers: 61 bracelets

Total cost can be calculated by adding:

fixed cost and variable cost.

The long run is best defined as a time period:

during which all inputs can be varied.

Suppose that a car manufacturer discovers that it can lower its average costs if it diversifies its operation by also producing pickup trucks and SUVs. What concept does this illustrate?

economies of scope

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Industrial equipment costs:

fixed cost

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Interest on current debt:

fixed cost

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Lease on building:

fixed cost

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Liability insurance costs:

fixed cost

Russ owns a fried chicken stand at the local beach. In calculating how much he earns from his business, Russ notices a difference between his economic and accounting profits. Why would Russ' economic profits differ from his accounting profits? They could differ because:

he may have implicit costs associated with operating the chicken stand in addition to explicit costs.

Slider owns a hamburger restaurant. Slider's minimum average variable cost is $10 at a quantity of 100 hamburgers, and his minimum average total cost is $15 at a quantity of 200 hamburgers. His total fixed cost is $300. Use this information to answer the questions. At a quantity of 250 hamburgers, the average total cost curve is:

increasing.

The marginal product curve always crosses the average product curve at:

its highest point

Determine whether each of the given statements describes a short‑run period, a long‑run period, or neither. Because of dismal sales last year, half of the city's donut shops exit the industry.

long run

Determine whether each of the given statements describes a short‑run period, a long‑run period, or neither. Newton Bros. Bagels opens a new store on the other side of town:

long run

Use the information given in the table to calculate the marginal cost of the third unit of output. Enter your answer exactly; do not round.

marginal cost of the third unit of output: $20

Classify whether each of the given statements describes marginal product, average product, or diminishing returns. If hiring Kristen causes average product to increase, Kristen's __________________ must be above current average product.

marginal product

Classify whether each of the given statements describes marginal product, average product, or diminishing returns. Joe notices that when he hires another worker, the number of cars his company can wash increases.

marginal product

Classify whether each of the given statements describes marginal product, average product, or diminishing returns. This is the change in total output divided by the change in the number of workers.

marginal product

Use the information in the table to answer the two questions that follow about Monster's Ink, a tattoo shop. What is the marginal product of the fourth tattoo artist?

marginal product: 3 tattoos

Total revenue is best described as:

price per unit times the number of units sold.

Accounting profit is calculated by:

total revenue minus explicit costs.

Economic profit is:

typically lower than accounting profit.

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Cost of metal used in manufacturing:

variable cost

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Cost of wood used in manufacturing:

variable cost

Everything Looks Like a Nail, Inc. is a manufacturing company that produces hammers. The company faces various fixed and variable costs in the short run. Determine which of Everything Looks Like a Nail's costs are fixed costs and which are variable costs. Assume the company cannot easily adjust the amount of capital that it uses and that salaries are negotiated only once per year. Postage and packaging costs:

variable cost