Exam 12: The Costs of Production

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Diminishing marginal product exists when the production function becomes flatter as inputs increase.

If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

Suppose that Danita owns a cupcake bakery. In the short run, at least one of her inputs is fixed. Provide one or two examples of the types of inputs that could be fixed in the short run.

Profit equals total revenue minus total cost.

Describe the general shape of the average-fixed-cost curve.

Scenario 13-8 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. -Refer to Scenario 13-8. What are Wanda's total economic costs per glass?

When economists speak of a firm's costs, they are usually excluding the opportunity costs.

Table 13-4 Charles's Math Tutoring -Refer to Table 13-4. Charles's math tutoring company experiences diminishing marginal productivity with the addition of the

Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's

Industrial organization is the study of

In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.

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 accountant would calculate the total profit for one photo frame to be

Variable costs usually change as the firm alters the quantity of output produced.

Scenario 13-12 Ariana withdrew $400,000 out of her personal savings account and used it to start her new Internet cafe. The savings account pays 3 percent interest per year. During the first year of her business, Ariana sold 2,000 cups of coffee for $2.50 per cup and 4,000 hours of Internet time, also at $2.50 per hour. During the first year, the business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Ariana's time. -Refer to Scenario 13-12. Ariana's accounting profit for the year was

The value of a business owner's time is an example of

Implicit costs are costs that do not require an outlay of money by the firm.

Table 13-5 -Refer to Table 13-5. Diminishing marginal product begins with the addition of the

Table 13-1 -Refer to Table 13-1. What is total output when 2 workers are hired?