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Exam 13: The Costs of Production

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Question 21

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Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is

A) -$39,000.
B) $124,000.
C) $163,000.
D) $184,000.

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

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Question 22

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Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business?

A) $20
B) $40
C) $200
D) $400

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

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Question 23

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

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

Suppose that a firm's long­run average total costs of producing custom wooden picnic tables is $300 when it produces 10,000 tables and $325 when it produces 11,000 tables. For this range of output, the firm is experiencing

Scenario 13-14 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 13-14. Farmer Brown's production function exhibits

Scenario 13-7 Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. -Refer to Scenario 13-7. Julia's economic profits are

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.

Profit is defined as total revenue

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

If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits

Consider a small hair styling salon. List some examples of explicit costs of this business.

The marginal product of labor is equal to the

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

The amount of money that a firm receives from the sale of its output is called

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

Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business?

Table 13-1 -Refer to Table 13-1. What is total output when 2 workers are hired?

The length of the short run

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