Exam 7: Production and Costs

On what basis are accounting profits calculated?

Which of the following statements best describes average fixed cost?

What does the vertical distance between the average total cost curve and the average variable cost curve equal?

This figure shows the long-run average total cost curve for a firm that produces basketballs, along with four short-run average total cost curves. Each of the short-run average total cost curves corresponds to a different plant size. SRATC₁ corresponds to Plant size 1, SRATC₂ corresponds to Plant size 2, and so forth. FIGURE 7-5 -Refer to Figure 7-5. Which plant is optimal if the firm is going to produce 500 basketballs per week?

An Alberta oil woman would like to increase the oil produced from her oil fields. Since it takes over a year to drill new wells, she opts instead for increasing labour and other variable inputs to produce more oil from existing wells. She is making a short-run production decision.

TABLE 7-1 -Refer to Table 7-1. With which additional picker does the marginal product of labour become negative?

If the marginal cost is less than average total cost, average total cost will decrease.

What does the production function describe?

How do firms measure their profit?

FIGURE 7-2 -Refer to Figure 7-2. What does the distance (Y) between the two curves in the diagram represent?

FIGURE 7-4 -Refer to Figure 7-4. At output level 0Q, what is average variable cost equal to?

The R&J Ice Cream Company makes 4-litre tubs of ice cream using the technology described below. Fill in the Marginal Product columns of these tables. When six ice cream makers are utilized each hour, at what point does diminishing marginal product set in? When eight ice cream makers are utilized, at what point does diminishing marginal product set in? Why is the point of diminishing marginal product different in each case?

Scarlett recently began running her husband's lumber mill. Last month she took in $5000 in sales revenue and paid $3400 in out-of-pocket costs. Did the lumberyard make an economic profit last month?

Which of the following statements best describes the relationship between average total cost and marginal cost?

A firm is producing 1000 units of output for which the average variable cost of production equals 50 cents. The firm's total fixed costs equal $700. What is the total cost of producing 1000 units of output?

FIGURE 7-1 -Refer to Figure 7-1. What is the marginal product of the fifth worker hired each week?

What shape is a firm's average fixed cost curve?

Don Keene promotes boxing matches. He makes $6500 per fight. Which of the following costs is most relevant to a decision as to whether to promote another fight?

Which of the following best describes sunk costs?