Exam 13: The Costs of Production

Scenario 13-4 Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%. -Refer to Scenario 13-4. Abdul's annual explicit cost of capital is

Table 13-7 The Flying Elvis Copter Rides -Refer to Table 13-7. What is the value of D?

Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business?

Economists in the field of industrial organization study how

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the marginal cost of production when the firm hires the 7th worker?

Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Variable costs for Sonia's yoga studio include the cost of the (i) Tank tops. (ii) Wages paid to the other yoga instructors. (iii) Lease on the studio space.(iv) Insurance that the landlord requires Sonia to carry for the studio.

Table 13-7 The Flying Elvis Copter Rides -Refer to Table 13-7. What is the value of L?

Table 13-19 -Refer to Table 13-19. What is the average variable cost of producing 400 units of output?

Scenario 13-10 Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. -Refer to Scenario 13-10. An economist would calculate the total profit for one photo frame to be

Scenario 13-1 Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year. -Refer to Scenario 13-1. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?

Scenario 13-3 Kachina is a senior majoring in graphic design at Awesome University (AU). While she has been attending college, Kachina started a computer consulting business to help senior citizens learn how to use their iPads. Kachina charges $25 per hour for her consulting services. She also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Kachina $20 per hour. -Refer to Scenario 13-3. If Kachina can work additional hours at either job, what is the opportunity cost if she spends one hour reading a novel?

Average variable cost will decrease if __________.

The average-total-cost curve reflects the shape of both the average-fixed-cost and average-variable-cost curves.

Scenario 13-20 Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. -Refer to Scenario 13-20. Marginal cost will be

The length of the short run

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

Scenario 13-10 Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. -Refer to Scenario 13-10. An economist would calculate the total cost for one photo frame to be

Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.

When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale.