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Exam 13: The Costs of Production

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Question 111

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Explicit costs

A) do not require an outlay of money by the firm.
B) enter into the accountant's measurement of a firm's profit.
C) enter into the economist's measurement of a firm's profit.
D) Both b and c are correct.

E) All of the above
F) A) and C)

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Question 112

True/False

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Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250.

A) True
B) False

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Question 113

Multiple Choice

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Economies of scale occur when a firm's

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

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

Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.

When a firm experiences constant returns to scale,

Table 13-19 -Refer to Table 13-19. What is the shape of the marginal-cost curve?

Table 13-19 -Refer to Table 13-19. What is the shape of this firm's total­cost curve?

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

Average variable cost is equal to total variable cost divided by quantity of output.

Scenario 13-10 Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. -Refer to Scenario 13-10. An accountant would calculate the total profit for one photo frame to be

A firm that wants to achieve economies of scale could do so by

Figure 13-10 -Refer to Figure 13-10. The firm experiences constant returns to scale if it changes its level of output from

Scenario 13-13 Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. -Refer to Scenario 13-13. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual economic profit of her cookie jar business?

Table 13-16 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-16. Which firm is experiencing constant returns to scale?

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

To an economist, the field of industrial organization answers which of the following questions?

Constant returns to scale occur when the firm's long­run

If a firm produces nothing, it still incurs its fixed costs.