Exam 13: The Costs of Production

Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are

Describe how a study group of economics students could experience economies of scale as they study for an economics exam.

Table 13-2 -Refer to Table 13-2. What is the marginal product of the fourth worker?

Economies of scale occur when

Profit is defined as

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is

Scenario 13-5 Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%. -Refer to Scenario 13-5. Emily's total opportunity cost of capital is

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?

Describe the relationship between average total cost and marginal cost.

An example of an explicit cost for the owner of a tattoo parlor would be the wages that she could earn if she worked as a graphic artist for an advertising agency.

Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. -Refer to Figure 13-9. This firm experiences diseconomies of scale at what output levels?

Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. -Refer to Figure 13-9. At levels of output between M and N, the firm experiences

Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are

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 implicit cost of capital is

The cost of producing an additional unit of a good is not the same as the average cost of the good.

Scenario 13-9 Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. -Refer to Scenario 13-9. Ellie's annual economic costs will equal

The shape of the total-cost curve is inversely related to the shape of the production function.

An entrepreneur's motivation to start a business arises from

What effect, if any, does diminishing marginal product have on the shape of the marginal cost curve?

Suppose that Christine owns her own CPA firm. She uses only two inputs in her business: her hours worked (labor) and a computer (capital). In the short run, Christine most likely considers