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Exam 13: The Costs of Production

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Question 91

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Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the total output of five workers?

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Total output of four workers =...

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Question 92

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Table 13-3 ​ ​ $\begin{array} { | c | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 50 & 0 & 50 \\\hline 1 & 90 & 50 & 20 & 70 \\\hline 2 & 170 & 50 & 40 & 90 \\\hline 3 & 230 & 50 & 60 & 110 \\\hline 4 & 240 & 50 & 80 & 130 \\\hline\end{array}$ ​ ​ ​ -Refer to Table 13-3. At which number of workers does diminishing marginal product begin?

A) 1
B) 2
C) 3
D) 4

E) B) and D)
F) A) and D)

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Question 93

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The average-total-cost curve reflects the shape of both the average-fixed-cost and average-variable-cost curves.

Table 13-13 Listed in the table are the long-run total costs for three different firms. $\begin{array} { | l | l | l | l | l | l | } \hline \text { uantity } & \mathbf { 2 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \\\hline \text { Firm A } & 100 & 100 & 100 & 100 & 100 \\\hline \text { Firm B } & 100 & 200 & 300 & 400 & 500 \\\hline \text { Firm C } & 100 & 300 & 600 & 1,000 & 1,500 \\\hline\end{array}$ -Refer to Table 13-13. Firm B is experiencing constant returns to scale.

Table 13-9 ​ ​ $\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of w orkers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 30 & 0 \\\hline 1 & 100 & 30 & 15 \\\hline 2 & 180 & 30 & 30 \\\hline 3 & 240 & 30 & 45 \\\hline 4 & 280 & 30 & 60 \\\hline 5 & 300 & 30 & 75 \\\hline\end{array}$ -Refer to Table 13-9. What is the marginal product of the third worker?

Accounting profit is greater than or equal to economic profit.

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is

When a firm experiences economies of scale,

Table 13-8 ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 20 & 0 \\\hline 1 & 20 & 10 \\\hline 2 & 20 & 40 \\\hline 3 & 20 & 80 \\\hline 4 & 20 & 130 \\\hline 5 & 20 & 200 \\\hline 6 & 20 & 300 \\\hline\end{array}$ -Refer to Table 13-8. What is the average variable cost of producing 5 units of output?

Scenario 13-4 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. -Refer to Scenario 13-4. Farmer Brown's total-cost curve is

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital) . In the short run, the firm most likely considers

The minimum points of the average variable cost and average total cost curves occur where the

Figure 13-2 ​ -Refer to Figure 13-2. Curve B is increasing because

When a firm experiences economies of scale, long-run average total cost falls as the quantity of output increases.

The production function depicts a relationship between which two variables? Also, draw a production function that exhibits diminishing marginal product.

Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the marginal product of the third worker?

When economists speak of a firm's costs, they are usually excluding the opportunity costs.

Table 13-7 The following table shows the production costs for The Flying Elvis Copter Rides. ​ ​ $\begin{array} { | c | c | c | c | c | c | c | c } \hline \begin{array} { c } \text { Output } \\\text { (Helicopter } \\\text { rides) }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Fixed } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Average } \\\text { Fixed Cost } \\\text { (Dollars per } \\\text { ride) }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable } \\\text { Cost } \\\text { (Dollars per } \\\text { ride) }\end{array} & \begin{array} { c } \text { Avera } \\\text { Total Cost } \\\text { (Dollars } \\\text { ride) }\end{array} \\\hline 0 & 50 & 50 & 0 & - - & - & - & - \\\hline 1 & 150 & \mathrm {~A} & \mathrm {~B} & \mathrm { C } & \mathrm { D } & \mathrm { E } & \mathrm { F } \\\hline 2 & \mathrm { G } & \mathrm { H } & \mathrm { I } & 120 & \mathrm {~J} & \mathrm {~K} & \mathrm {~L} \\\hline 3 & \mathrm { M } & \mathrm { N } & \mathrm { O } & \mathrm { P } & \mathrm { Q } & 120 & \mathrm { R } \\\hline\end{array}$ ​ ​ ​ ​ -Refer to Table 13-7. What is the value of A?

Ren's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $120 for 10,000 tents. At that level of output, the firm's average total costs equal

In the long run, a factory is usually considered a fixed input.