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Exam 13: The Costs of Production

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Question 1

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Constant returns to scale occur when the firm's long-run

A) total costs are constant as output increases.
B) average total costs are constant as output increases.
C) average cost curve is falling as output increases.
D) average cost curve is rising as output increases.

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

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Question 2

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Scenario 13-7 Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. -Refer to Scenario 13-7. Julia's implicit costs are

A) 0.
B) $10,000.
C) $15,000.
D) $25,000.

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

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Question 3

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

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

Which of the following statements is not correct?

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

Table 13-18 -Refer to Table 13-18. What is the total output of four workers?

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)

Figure 13-5 -Refer to Figure 13-5. Which curve is most likely to represent marginal cost?

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers?

Scenario 13-22 Suppose that a small hair styling salon had revenues of $150,000 in a given year. The owner spent $10,000 on utilities, $60,000 on supplies (shampoo, conditioner, hair coloring and other chemicals, etc.), and $50,000 on equipment (mirrors, chairs, scissors, curling irons, etc.), including maintenance. The owner could have earned $50,000 working at another salon. -Refer to Scenario 13-22. What is the economic profit for the hair styling salon?

Table 13-13 Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. -Refer to Table 13-13. What is the average variable cost for the month if 6 instructional modules are produced?

Consider the following information about bread production at Beth's Bakery: Beth pays all her workers the same wage, and labor is her only variable cost. From this information we can conclude that Beth's marginal cost

An example of an opportunity cost that is also an implicit cost is

Scenario 13-2 Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year. -Refer to Scenario 13-2. Suppose Chelsea purchases the factory using $50,000 of her own money and $50,000 borrowed from a bank at an interest rate of 6 percent. What is Chelsea's annual opportunity cost of purchasing the factory?

Table 13-13 Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. -Refer to Table 13-13. What is the marginal cost of creating the tenth instructional module in a given month?

Which of the following would be an example of an implicit cost? (i) Forgone investment opportunities (ii) Wages of workers (iii) Raw materials costs

Table 13-9 -Refer to Table 13-9. The marginal products of hiring additional workers are

Table 13-4 Charles's Math Tutoring -Refer to Table 13-4. Suppose that Charles's math tutoring company has a fixed cost of $50 per month for his cell phone. Each worker costs Charles $60 per day. As output increases from 0 to 45 students, Charles's total cost curve

The field of industrial organization addresses how the number of firms affects prices in a market and the efficiency of the market outcome.