Exam 7: Production Costs

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes equaled $90,400. Sam's implicit costs for this year are equal to:

Which of the following must be true if average total cost is rising?

Economies of scale are created by greater efficiency of capital and by:

Which of the following best describes average variable cost?

Economies of scale can be caused by all of the following except:

The opportunity costs associated with the use of resources owned by a firm are:

Exhibit 7-12 Cost schedule for producing pizza Pizzas Fixed Cost Variable Cost Total Cost 0 \ \ \ 1 48 2 17 3 27 4 78 5 40 6 64 7 80 -By filling in the blanks in Exhibit 7-12, the AVC of 4 pizzas is shown to be equal to:

If a firm's average variable cost curve is rising, its marginal cost must exceed its average variable cost.

In the short-run, total fixed costs always exceed total variable costs.

What is the shape of the average total cost curve for a firm in the short run?

Exhibit 7-8 Costs schedules for producing pizza Pizzas Fixed Cost Variable Cost Total Cost Marginal Cost 0 \ \ \ \ 1 5 2 13 3 10 4 100 140 5 20 6 85 7 215 -By filling in the blanks in Exhibit 7-8, the average total cost of producing 5 pizzas is shown to be equal to:

Exhibit 7-15 Long-run average cost -If the firm represented in Exhibit 7-15 is operating with a plant whose size corresponds to short-run average total cost curve A, the level of output that would minimize its short-run average total cost is:

In the short run, a firm will eventually experience rising per-unit costs because of:

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000, for food and $2,000 for gas and electricity. What are his implicit costs?

The decreasing portion of a firm's long run average cost curve is attributable to:

If a firm's use of labor obeys the law of diminishing returns, then:

Normal profit is defined as a(n):

Suppose a firm has total revenue of $200 million, explicit costs of $190 million, and implicit costs of $20 million. This firm's accounting profit is:

Exhibit 7-15 Long-run average cost -Given the short-run average total cost curves in Exhibit 7-15, what level of output per week minimizes average total cost?

Diseconomies of scale exist for all of the following reasons except: