Exam 12: The Firm Production and Costs

Economists and accountants both think of profits as total revenue minus total cost, but what they include in costs may differ.

Exhibit -Refer to Exhibit. How much are total fixed costs (in dollars)?

Exhibit A factory producing DVD players finds that its output varies with the number of workers employed each week in the following way: ​ -Refer to Exhibit. The marginal product of the fifth worker hired is:

​Exhibit ​ -Refer to Exhibit. The distance Y between the two curves in the diagram is:

If a firm that had to pay an explicit rent of $5,000 a month bought its own building, at which point it could rent that building to another firm for $4,500 a month, it faces a lower opportunity cost of occupying the building when it owns it.

If you pay a parking fee that lets you park at your job for free every day, its average cost per day is irrelevant to your decision whether to part at your job on a given day of the year.

Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9, and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5. Given the above information,

Exhibit The table below shows how total cost varies with output in a factory producing watches:​ -Refer to Exhibit. The marginal cost of producing a third watch equals:

In the table below, which of the following is false?

A company can protect itself from the opportunity cost of rising rents in an area by buying its own building.

The tuition you paid at the beginning of the term is a sunk cost, when determining the opportunity cost of attending a session of the class.

​Figure -In Figure, which plant size is optimal for the firm to produce q_C units of output each week?

Exhibit -Refer to Exhibit. Which of the following is true?

​Figure 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. -In Figure, what is the total cost of producing 1,500 basketballs per week assuming the firm uses the optimal plant size?

If a firm's implicit costs are greater than its explicit costs, it tells us nothing about whether a firm is earning economic or accounting profits.

​Exhibit -Refer to Exhibit. The average fixed cost curve is the curve labeled:

Farmers who work for themselves with their own equipment on their own land could earn accounting profits and economic losses at the same time.

A firm's total product of labor curve is represented by the following data: 1 worker can produce 4 units of output; 2 workers, 10 units; 3 workers, 17 units; 4 workers, 25 units; 5 workers, 30 units; 6 workers, 35 units; 7 workers, 38 units; 8 workers, 39 units; and 9 workers, 38 units. What is the marginal product of the seventh worker? When does the law of diminishing marginal product set in? Under these circumstances would you ever choose to employ nine workers?

​Figure 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. -In Figure, which plant is optimal if the firm is going to produce 500 basketballs per week?

Total variable costs: