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Exam 13: The Costs of Production

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Question 81

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Table 13-5 The following table shows the production and costs for the Wooden Chair Factory. ​ ​ $\begin{array} { | c | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of } \\\text { workers) }\end{array} & \begin{array} { c } \text { Capital } \\\text { (Number of } \\\text { machines) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Chairs } \\\text { produced per } \\\text { hour) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Product of } \\\text { Labor } \\\text { (Chairs } \\\text { produced per } \\\text { hour) }\end{array} & \begin{array} { c } \text { Cost of } \\\text { Workers } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Cost of } \\\text { Machines } \\\text { (Dollars }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost } \\\text { (Dollars) }\end{array} \\\hline 1 & 2 & 5 & & & & \\\hline 2 & 2 & 10 & & & & \\\hline 3 & 2 & 20 & & & & \\\hline 4 & 2 & 35 & & & & \\\hline 5 & 2 & 55 & & & & \\\hline 6 & 2 & 70 & & & & \\\hline 7 & 2 & 80 & & & & \\\hline\end{array}$ ​ -Refer to Table 13-5. Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal product of labor when the factory adds a 6th worker?

A) 5 chairs per hour
B) 15 chairs per hour
C) 25 chairs per hour
D) 70 chairs per hour

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

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Question 82

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Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the shape of the average-variable-cost curve?

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AVC = VC/Q, where VC is graphed on the v...

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Question 83

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Describe how an accounting firm could experience economies of scale.

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 A is experiencing constant returns to scale.

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would

Figure 13-6 The following figure depicts average total cost functions for a firm that produces automobiles. ​ ​ ​ -Refer to Figure 13-6. At levels of output between P and Q, the firm experiences

Table 13-2 ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Marginal Product } \\\text { (Units) }\end{array} \\\hline 0 & 0 & - \\\hline 1 & 300 & \\\hline 2 & 500 & \\\hline 3 & 600 & \\\hline 4 & 650 & \\\hline\end{array}$ ​ ​ -Refer to Table 13-2. What is the marginal product of the first worker?

Consider a small hair styling salon. List some examples of implicit costs of this business.

Firms may experience diseconomies of scale when

In the short run, if a firm produces nothing, total costs are zero.

Diminishing marginal product exists when the production function becomes flatter as inputs increase.

Figure 13-3 -Refer to Figure 13-3. Which of the following can be inferred from the figure above?

When average total cost is above marginal cost, average total cost is rising.

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 D?

In the short run, a firm that produces and sells house paint can adjust

Figure 13-3 -Refer to Figure 13-3. Why doesn't the total cost curve begin at the origin (the point 0,0) ?

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Consider a small hair styling salon. List some examples of explicit costs of this business.

The marginal-cost curve intersects the average-total-cost curve at the minimum point of the marginal-cost curve.

If the average total cost curve is falling, what is necessarily true of the marginal cost curve? If the average total cost curve is rising, what is necessarily true of the marginal cost curve?