ECONomics part6

A firm is producing 50 units of output at a total cost of $1,000, with a per-unit variable cost of $8. What is the firm's average fixed cost?

$12

Which of the following is an example of a sunk cost fallacy?

"I'm not going to allow the sacrifice of 2,527 troops who have died in Iraq to be in vain by pulling out before the job is done."

Suppose a firm's total cost is given by TC = 150 + 0.50Q + 1.5Q^2. What is the firm's average variable cost of producing 10 units of output?

$15.50

A fixed cost:

does not change with the level of the firm's output.

Debbie, a popular wedding photographer, is able to photograph a wedding every Saturday of the year. She charges couples $4,000 for a complete set of photographs that cost her $2,200 to print and develop. Suppose that on one Saturday Debbie photographs her niece's wedding without charge, but her niece insists on paying Debbie $2,200 to cover her printing and developing costs. What is Debbie's economic cost of photographing her niece's wedding?

$1,800

Suppose that you close down your coffee shop and sell your coffee maker for $500. If you originally bought the coffee maker for $4,000 and it lost $1,000 because of depreciation (i.e., age and use), the sunk cost of the coffee maker is:

$2,500.

Charlie's Umbrellas has a production function given by Q = 10K^0.5 L^0.5, where MPL = 5K^0.5 /L^0.5 and MPK = 5L^0.5 /K^0.5. Charlie is using 9 units of capital (K) in the short run. The wage (W) is $80 per day and the rental per unit of capital (R) is $5 per day. What is Charlie's total cost of producing 60 umbrellas?

$365

Lilly's Lumberyard had the following revenues and costs last year: Costs Lumber supplies $ 80,000 Building rent 40,000 Utilities & insurance 20,000 Employee salaries 150,000 Lilly's salary 110,000 Revenues $400,000 If Lilly did not own a lumberyard, she would earn $115,000 per year as a store manager for Home Depot. Lilly's Lumberyard had an economic cost of _____ and an economic profit of _____.

$405,000; -$5,000

A firm's production function is given by Q = KL, where MPL = K and MPK = L. The wage rate (W) = $50 and the rental per unit of capital (R) is $12.50. In the short run, capital (K) is fixed at 10 units. The short-run average total cost of producing 100 units of output is _____, and the long-run average total cost of producing 100 units of output is _____.

$6.25; $5

A firm is producing 4 units of output at an average total cost of $40. When the firm produces 5 units of output, average total cost rises to $50. What is the marginal cost of the fifth unit of output?

$90

A firm's long-run total cost curve is given by LTC = 2,000Q - 10Q^2 + 1/3Q^3, and long-run marginal cost is given by LMC = 2,000 - 20Q + Q^2. What is the quantity of output that minimizes long-run average total cost?

15

A landscaping company is considering renting a backhoe at $12,000 for the season. The variable cost of completing a landscaping project with the use of the backhoe is $500. Alternatively, without the use of the backhoe, the company would incur a variable cost of $1,000 per landscaping project and no fixed costs. If the landscaping company plans to complete more than _____ projects, the total cost of landscaping projects will be lower _____.

24; with the backhoe

Suppose a firm's total cost and marginal cost functions are given by TC = 18 + Q + 2Q^2 and MC = 1 + 4Q, respectively. What is the output level that minimizes average total cost?

3

Suppose a firm's total cost and marginal cost are given by TC = 192 + 10Q + 3Q^2 and MC = 10 +6Q. What is the output level that minimizes average total cost?

8

Which of the following statements is (are) TRUE? I. If marginal cost is rising, the average total cost must be rising. II. The marginal cost curve intersects both the average total and average variable cost curves at their minimum points. III. If marginal cost is less than average variable cost, the average variable cost curve is negatively sloped.

II and III

Chad runs a coffee shop that has annual revenues of $300,000, supply costs of $60,000, and employee salaries of $60,000. He has the option of renting out the coffee shop for $80,000 per year, and he has three outside offers from competitors to work as a senior barista at Starbucks (for an annual salary of $30,000), at Simon's coffee house (for an annual salary of $40,000), and at Peet's coffee shop (for an annual salary of $60,000). He can only hold one job at a time. What should Chad do?

He should continue to run his coffee shop.

Which of the following statements is (are) TRUE? I. MC = DTC/DQ II. MC = DVC/DQ III. Marginal cost falls as returns to labor begin to diminish.

I and II

Which of the following statements is (are) TRUE? I. The firm's total cost is the sum of its fixed and variable costs. II. Over the long term, the costs of the firm's inputs tend to become fixed. III. In the long run, the firm can adjust the use of all of its inputs.

I and III

Which of the following statements is (are) TRUE? I. Accounting profit equals total revenue minus accounting cost. II. Economic cost equals accounting cost minus opportunity cost. III. Economic profit equals accounting profit plus opportunity cost. IV. Economic profit equals total revenue minus economic cost.

I and IV

Suppose a firm's total cost is given by TC = 100 + 4Q + 2Q^2. Which of the following statements is (are) TRUE? I. AVC = 4Q + 2Q^2 II. AFC = 100/Q III. ATC = 2Q + 4 + 100/Q IV. FC = 100 + 4Q

II and III

Which of the following statements is (are) TRUE? I. If a firm has economies of scale, long-run average total cost rises with increases in output. II. Diseconomies of scale are associated with the portion of the long-run average total cost curve that slopes upward. III. For the long-run average total cost curve to slope downward, the total cost of production must increase less than proportionately with output. IV. A firm may have economies of scale despite a production function with constant returns to scale.

II, III, and IV

Which of the following statements is (are) TRUE? I. If TC = $40,000 and FC = $18,000, then VC = $58,000. II. Because fixed cost does not vary with output, the fixed cost curve is a vertical line. III. The total cost and variable cost curves always have the same shape and slope. IV. When output is zero, total cost equals fixed costs.

III and IV

The firm's long-run total cost is given by LTC = 100Q - 10Q^2 + (1/3)Q^3, and long-run marginal cost is given by LMC = 100 - 20Q + Q^2. At what output level does the firm have economies of scale?

Q < 15

The firm's long-run total cost is given by LTC = 5,000Q - 100Q^2 + Q^3, and its long-run marginal cost is given by LMC = 5,000 - 200Q + 3Q^2. At what output level is the firm subject to diseconomies of scale?

Q > 50

A firm produces two goods Q1 and Q2. For economies of scope to occur, it must be TRUE that:

TC(Q1,0) + TC(0,Q2) > TC(Q1,Q2).

Which of the following statements is (are) TRUE?

The long-run average total cost curve is derived by tracing out all of the firm's short-run average total cost curves.

A business anticipates future operating revenues of $200 million, future operating costs of $150 million, and sunk costs of $60 million. This business should:

continue operations because the future operating revenues are greater than the future operating costs.

An entrepreneur gathers the following information to make a decision on whether to stay open for business or to shut down permanently: Future operating revenues = $18 million Future operating costs = $14 million Sunk costs = $8 million The entrepreneur should:

continue to operate because the operating revenues exceed the operating costs.

A firm is producing 10,000 units of output at a total cost of $5,000. If the firm increases output by 5,000 units and its total costs rise by $2,000, the firm has:

economies of scale.

Producing 200 units of good Y and 100 units of good X in the same factory costs the firm $50,000. In contrast, producing 200 units of good Y in one factory and 100 units of good X in another factory costs the firm $75,000. So if the firm produces the two goods together, it achieves:

economies of scope.

Suppose the total cost of producing goods Q1 and Q2 jointly is given by TC = 100 + 50Q1Q2 -(Q1Q2)^0.5. The total cost of producing Q1 and Q2 in two separate facilities is given by TC = 75 + 3,000Q1+ 1,000Q2 +Q1^2 +Q2^2. If the firm produces Q^1= 40 and Q^2 = 100, the firm should produce the goods _____ because of _____ of scope.

jointly; economies

Which of the following factors are likely to result in fewer fixed costs?

longer time horizons

Suppose a firm with a production function Q = KL (where MPL = K and MPK = L) is producing 125 units of output by using 5 workers and 25 units of capital. The wage rate (W) per worker is $10 and the rental per unit of capital (R) is $2. If it decreases output to 45 units, long-run average total cost _____ at 125 units of output to _____ at 45 units of output.

rises from $0.80; $1.33

Corporate bankruptcy restructuring allows a firm to treat its debt payments as:

sunk costs.

The presence of capital rental markets gives firms:

the flexibility to adjust capital usage to output levels, making capital costs variable.