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Exam 13: The Costs of Production

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Question 121

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Scenario 13-5 Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%. -Refer to Scenario 13-5. Emily's implicit cost of capital is

A) $2,000.
B) $4,000.
C) $12,000.
D) $14,000.

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

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Question 122

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Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe­ Shine business

A) (i) only
B) (i) and (ii) only
C) (iii) and (iv) only
D) (i) , (ii) , (iii) , and (iv)

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

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Question 123

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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.

Katya owns a math-tutoring business. Her accountant most likely includes which of the following costs on her financial statements? (i) workbooks containing practice problems (ii) rent for the storefront (iii) wages Katya could earn as a bookkeeper (iv) interest that Katya's money was earning before she spent her savings to set up the Tutoring business

Constant returns to scale occur when a firm's

Analyzing the behavior of the firm enhances our understanding of

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

Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory as fixed. This assumption is often realistic

Table 13-17 Consider the following table of long-run total cost for four different firms: -Refer to Table 13-17. Firm 4's efficient scale occurs at what quantity?

Briefly describe why measuring a firm's costs is more complicated than measuring its revenues.

Stick Storage manufactures and sells computer flash drives. Last year it sold 2 million flash drives at a price of $10 each. For last year, the firm's

Figure 13-2 -Refer to Figure 13-2. As the number of workers increases,

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm A is experiencing economies of scale.

Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit.

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's profit.

A production function is a relationship between inputs and

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?

Total revenue equals

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's costs.

Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases.