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Exam 13: The Costs of Production

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Question 51

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The average-fixed-cost curve is always declining. How does this affect the relationship between the AVC and ATC curves?

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ATC = AVC + AFC, so the vertical distanc...

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Question 52

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Chloe 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 4 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. Chloe's accounting profits are

A) $100, and her economic profits are $40.
B) $100, and her economic profits are $15.
C) $40, and her economic profits are $100.
D) $15, and her economic profits are $140.

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

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Question 53

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As a firm moves along its long-run average cost curve, it is adjusting the size of its factory to the quantity of production.

Adam Smith describes a visit to a car factory when discussing economies of scale in his book An Inquiry into the Nature and Causes of the Wealth of Nations.

Table 13-8 ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 20 & 0 \\\hline 1 & 20 & 10 \\\hline 2 & 20 & 40 \\\hline 3 & 20 & 80 \\\hline 4 & 20 & 130 \\\hline 5 & 20 & 200 \\\hline 6 & 20 & 300 \\\hline\end{array}$ -Refer to Table 13-8. What is the shape of the marginal cost curve for this firm?

Variable costs equal fixed costs when nothing is produced.

Average total cost is increasing whenever

Figure 13-2 ​ -Refer to Figure 13-2. Curve D is always declining because

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

Table 13-9 ​ ​ $\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of w orkers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 30 & 0 \\\hline 1 & 100 & 30 & 15 \\\hline 2 & 180 & 30 & 30 \\\hline 3 & 240 & 30 & 45 \\\hline 4 & 280 & 30 & 60 \\\hline 5 & 300 & 30 & 75 \\\hline\end{array}$ -Refer to Table 13-9. The average variable cost of producing 240 units is

When marginal cost is less than average total cost,

An example of an explicit cost for the owner of a tattoo parlor would be the wages that she could earn if she worked as a graphic artist for an advertising agency.

Define profit.

In the long run a company that produces and sells popcorn incurs total costs of $1,150 when output is 60 canisters and $1,100 when output is 90 canisters. The popcorn company exhibits

Table 13-14 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 10 \\\hline 1 & 200 & 200 & \$ 20 & \$ 10 \\\hline 2 & 350 & & \$ 40 & \$ 10 \\\hline 3 & 450 & & \$ 60 & \$ 10 \\\hline 4 & & 50 & \$ 80 & \$ 10 \\\hline 5 & & 25 & \$ 100 & \$ 10 \\\hline 6 & 530 & & \$ 120 & \$ 10 \\\hline\end{array}$ -Refer to Table 13-14. What is the shape of the average-variable-cost curve?

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

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.

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?

Several related measures of cost can be derived from a firm's total cost.

Table 13-9 ​ ​ $\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of w orkers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 30 & 0 \\\hline 1 & 100 & 30 & 15 \\\hline 2 & 180 & 30 & 30 \\\hline 3 & 240 & 30 & 45 \\\hline 4 & 280 & 30 & 60 \\\hline 5 & 300 & 30 & 75 \\\hline\end{array}$ -Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its total-cost curve is