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Exam 13: The Costs of Production

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Question 41

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Marginal costs are costs that do not vary with the quantity of output produced.

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B) False

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Question 42

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Profit equals total revenue minus total cost.

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B) False

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Question 43

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Economists and accountants both include forgone income as a cost to a small business owner.

A firm that produces and sells furniture gets to choose

If a firm uses labor to produce output, the firm's production function depicts the relationship between

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900. ​

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 B?

Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first is the existence of diminishing marginal product, which causes it to rise. What would be the second reason? Assume that the marginal cost curve is linear. (Hint: The second reason relates to average fixed cost)

Accountants keep track of the money that flows into and out of firms.

The shape of the total-cost curve is inversely related to the shape of the production function.

Assume Jack received all As in his classes last semester. If Jack gets all Bs in his classes this semester, his GPA may or may not fall.

Suppose that Danita owns a cupcake bakery. In the short run, at least one of her inputs is fixed. Provide one or two examples of the types of inputs that could be fixed in the short run.

Table 13-6 Consider the following information about baseball production at Bobby's Baseball Factory. ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of workers) }\end{array} & \begin{array} { c } \text { Marginal Product } \\\text { (Baseballs) }\end{array} \\\hline 1 & 3 \\\hline 2 & 5 \\\hline 3 & 8 \\\hline 4 & 10 \\\hline 5 & 7 \\\hline 6 & 4 \\\hline 7 & 2 \\\hline\end{array}$ ​ ​ -Refer to Table 13-6. Bobby pays all his workers the same wage, and labor is his only variable cost. From this information we can conclude that Bobby's average variable cost decreases

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon also quit his job as a waiter, which paid $20,000. According to an economist, Jaxon's opportunity cost of opening the tattoo parlor equals $20,900.

The U-shaped average-total-cost curve reflects the U-shaped average-fixed-cost curve.

The marginal-cost curve intersects the average-total-cost curve at the output level where average fixed costs are zero.

There is general agreement among economists that the long-run time period exceeds one year.

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

In the long run,

An example of an explicit cost would be the wages that a business owner pays her employees.