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Exam 13: The Costs of Production

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Question 131

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A firm's opportunity costs of production are equal to its

A) explicit costs only.
B) implicit costs only.
C) explicit costs + implicit costs.
D) explicit costs + implicit costs + total revenue.

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

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Question 132

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Table 13-2 ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Marginal Product } \\\text { (Units) }\end{array} \\\hline 0 & 0 & - \\\hline 1 & 300 & \\\hline 2 & 500 & \\\hline 3 & 600 & \\\hline 4 & 650 & \\\hline\end{array}$ ​ ​ -Refer to Table 13-2. At which number of workers does diminishing marginal product begin?

A) 1
B) 2
C) 3
D) 4

E) A) and B)
F) None of the above

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Question 133

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Which is greater -- economic profit or accounting profit?

Scenario 13-4 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. -Refer to Scenario 13-4. Farmer Brown's production function exhibits

Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the average total cost of producing 425 units of output?

Table 13-3 ​ ​ $\begin{array} { | c | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 50 & 0 & 50 \\\hline 1 & 90 & 50 & 20 & 70 \\\hline 2 & 170 & 50 & 40 & 90 \\\hline 3 & 230 & 50 & 60 & 110 \\\hline 4 & 240 & 50 & 80 & 130 \\\hline\end{array}$ ​ ​ ​ -On a 200-acre farm, a farmer is able to produce 2,000 bushels of wheat when he hires 2 workers. He is able to produce 2,800 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

Variable costs usually change as the firm alters the quantity of output produced.

Diseconomies of scale often arise because higher production levels allow specialization among workers.

Table 13-3 ​ ​ $\begin{array} { | c | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Fixed Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 50 & 0 & 50 \\\hline 1 & 90 & 50 & 20 & 70 \\\hline 2 & 170 & 50 & 40 & 90 \\\hline 3 & 230 & 50 & 60 & 110 \\\hline 4 & 240 & 50 & 80 & 130 \\\hline\end{array}$ ​ ​ ​ -As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters

Table 13-10 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. ​ ​ $\begin{array} { | c | c | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (Instructional } \\\text { modules per } \\\text { month) }\end{array} & \begin{array} { c } \text { Fixed } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Variable } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Average } \\\text { Fixed Cost } \\\text { (Dollars } \\\text { per unit) }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable } \\\text { Cost } \\\text { (Dollars per } \\\text { unit) }\end{array} & \begin{array} { c } \text { Average } \\\text { Total Cost } \\\text { (Dollars } \\\text { per unit) }\end{array} \\\hline 0 & 1,080 & & & & & & \\\hline 1 & 1,080 & 400 & 1480 & 400 & & & \\\hline 2 & & & & 450 & & & 965\\\hline 3 & & 1,350 & 2,430 & & & & \\\hline 4 & & 1,900 & & & & 475& \\\hline 5 & & 2,500 & & & 216 & & \\\hline 6 & & & 4,280 & 700 & & & \\\hline 7 & & 4,100 & & & & & \\\hline 8 & & 5,400 & & &135 & & \\\hline 9 & & 7,300 & & & & & \\\hline 10 & & & 10,880 & & & 980 & \\\hline\end{array}$ ​ ​ ​ -Refer to Table 13-10. What is the marginal cost of creating the tenth instructional module in a given month?

Total cost is the

A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,

Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the average fixed cost of producing 430 units of output?

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 marginal product of the sixth worker?

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

A firm produces 60 units of output with 5 workers, 65 units with 6 workers, and 68 units with 7 workers. The firm's production function exhibits diminishing marginal productivity between 5 and 7 workers. ​

Scenario 13-3 Diamond is an organic brocolli farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Diamond helps people organize their houses. Due to the popularity of her home-organization services, Farmer Diamond has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Diamond charges $45 an hour for her home-organization services. One spring day, Diamond spends 8 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of brocolli. -Refer to Scenario 13-3. An economist would calculate Diamond's total cost for the day of farming to equal

-Refer to Table 13-12. Which firm has economies of scale and then diseconomies of scale as output increases from 1 to 7?

Suppose that for a particular business there are no implicit costs. Then

The average fixed cost curve