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Exam 13: The Costs of Production

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Question 301

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Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130) . Then the marginal product of the 13th worker is

A) 8 units of output.
B) 10 units of output.
C) 122 units of output.
D) 132 units of output.

E) B) and D)
F) All of the above

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Question 302

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An example of an explicit cost would be the wages that a business owner pays her employees.

A) True
B) False

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Question 303

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Scenario 13-16 Barney builds custom wooden birdhouses. He can make 150 birdhouses per month and sell them for $50 each. His average total cost is $30 per birdhouse. -Refer to Scenario 13-16. Barney is considering hiring his best friend Fred to work for him. Fred can build 125 birdhouses per month. If Barney hires Fred, what will be the monthly marginal product?

An entrepreneur's motivation to start a business arises from

Table 13-2 -Refer to Table 13-2. What is the marginal product of the second worker?

How would a production function that exhibits decreasing marginal product affect the shape of the total cost curve? Explain or draw a graph.

What effect, if any, does diminishing marginal product have on the shape of the marginal cost curve?

Table 13-19 -Refer to Table 13-19. What is the shape of the average-fixed-cost curve?

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

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

Figure 13-10 -Refer to Figure 13-10. The firm experiences economies of scale if it changes its level of output from

Constant returns to scale occur when a firm's

Describe how an accounting firm could experience economies of scale.

Figure 13-5 -Refer to Figure 13-5. Which of the curves is most likely to represent average fixed cost?

Scenario 13-9 Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. -Refer to Scenario 13-9. According to Ellie's accountant, which of the following revenue totals will yield her business $50,000 in profits?

Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250.

The economic field of industrial organization examines how firms' decisions about prices and quantities depend on the market conditions they face.

Scenario 13-11 Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. -Refer to Scenario 13-11. The explicit cost for one birdhouse is

A firm's total profit equals its marginal revenue minus its marginal cost.

The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is