CHAPTER 14 Economics

Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal

$1,000.

Refer to Table 14-7. What is the value of C?

$100

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

$110

Refer to Table 14-7. What is the value of F?

$150

Refer to Scenario 14-1. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?

$18,000

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?

$4,000

Refer to Table 14-8. What is the average variable cost of producing 5 units of output?

$40

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is

16 units of output.

Refer to Table 14-12. Firm 4's efficient scale occurs at what quantity?

3

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is

8 units of output.

Which of the following is an example of an implicit cost?

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

Refer to Table 14-5 . The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of which worker?

The sixth worker

Average total cost is very high when a small amount of output is produced because

average fixed cost is high

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

economies of scale

Refer to Table 14-9. For the firm whose production function and costs are specified in the table, its average-variable-cost curve is

increasing.

Firms may experience diseconomies of scale when

large management structures are bureaucratic and inefficient.

If marginal cost is rising,

marginal product must be falling.

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

−$3,875.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

The cost of the steel that is used in producing automobiles

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.