chapt 7

Which of the following statements is correct?

Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

$100, and her economic profits are $25.

Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are

7500

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are

25

An example of an opportunity cost that is also an implicit cost is

the value of the business owner's time

The nature of a firm's cost (fixed or variable) depends on the

time horizon under consideration (long run or short run).

Which of the following can be added to profit to obtain total revenue?

total cost

The amount of money that a firm receives from the sale of its output is called

total revenue

Suppose that a small hair styling salon had revenues of $150,000 in a given year. The owner spent $10,000 on utilities, $60,000 on supplies (shampoo, conditioner, hair coloring and other chemicals, etc.), and $50,000 on equipment (mirrors, chairs, scissors, curling irons, etc.), including maintenance. The owner could have earned $50,000 working at another salon. What is the accounting profit for the hair styling salon?

$30,000

In the previous question, what is the economic profit for the hair styling salon?

-$20,000

Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be

-3875

A total-cost curve shows the relationship between the

. quantity of output produced and the total cost of production.

Riva crafts and sells hard cider as a part-time job. She can bottle and sell four cases in a week. She is considering hiring her friend Atul to help her. Together, Riva and Atul can bottle and sell seven cases per week. What is Atul's marginal product?

3 cases

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

____________ tells a firm whether it can earn profits given the price in the market.

Average total cost

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.

average variable cost; fixed costs

At low levels of production, the firm

benefits from increased size because it can take advantage of greater specialization. B. has the potential for economies of scale. C. is unlikely to experiences acute problems with coordination. Correct D. All of the above are correct.

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters

diminishing marginal product.

In microeconomics, which of the following terms is synonymous with decreasing returns of scale?

diseconomies of scale

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

Which of the following explains why long-run average total cost at first decreases as output increases?

fixed costs becoming spread out over more units of output

In the long run, a firm that produces and sells textbooks gets to choose

how many workers to hire. B. the size of its factories. C. which short-run average-total-cost curve to use. Correct D. All of the above are correct.

Katya owns a math-tutoring business. Her accountant most likely includes which of the following costs on her financial statements? (i) workbooks containing practice problems (ii) rent for the storefront (iii) wages Katya could earn as a bookkeeper (iv) interest that Katya's money was earning before she spent her savings to set up the tutoring business

i and II

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

The marginal product of labor is equal to the

increase in output obtained from a one unit increase in labor

The length of the short run

is different for different types of firms.

The economies-of-scale curve is a long-run average cost curve, because

it allows all factors of production to change to be more efficient.

An example of an explicit cost of production would be the

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

Economists assume that the typical person who starts her own business does so with the intention of

maximizing profits.

In economics, a firm that faces no competitors is referred to as

monopolist

Collin used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's

opportunity costs

Total cost is the

the market value of the inputs a firm uses in production

If a paper mill shuts down its operations for three months so that it produces nothing, which of its following costs will be reduced to zero?

variable costs