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Exam 13: The Costs of Production

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Question 201

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In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits

A) diseconomies of scale because total cost is rising as output rises.
B) constant returns to scale because average total cost is constant as output rises.
C) diseconomies of scale because average total cost is rising as output rises.
D) economies of scale because average total cost is falling as output rises.

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

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Question 202

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

A) where to produce along its long-run average-total-cost curve.
B) the size of its factories.
C) how many workers to hire.
D) All of the above are correct.

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

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Question 203

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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.

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000. Which of the following statements is correct?

Scenario 13-21 Suppose that a small family farm sold its output for $100,000 in a given year. The family spent $25,000 on fuel, $40,000 on seed, fertilizer, and pesticides, and $25,000 on equipment, including maintenance. The family members could have earned $20,000 working at other occupations. -Refer to Scenario 13-21. What is the economic profit for the family farm?

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband?

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

Scenario 13-6 Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. -Refer to Scenario 13-6. Ziva's accountant would calculate the total cost of farming to equal

Which of the following is an example of an implicit cost?

Average total cost reveals how much total cost will change as the firm alters its level of production.

Table 13-3 -Refer to Table 13-3. The marginal product of the second worker is

Average total cost and marginal cost express information that is already contained in a firm's total cost.

The opportunity cost of capital is an implicit cost almost every business incurs.

Average total cost will increase if .

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)

Table 13-18 -Refer to Table 13-18. What is the shape of the average-total-cost curve?

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can paint five houses per week. What is the maximum total output possible if Eldin hires Murphy?

Economists assume that the goal of the firm is to maximize total

The marginal product of any input is the

Define profit.