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Exam 9: Businesses and the Costs of Production

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Question 101

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The sole proprietor of the Milwaukee Machine Company receives all accounting profits earned by her firm. She has a standing salary offer of $35,000 a year to work for a large corporation. If she had invested her capital outside her own company, she estimates that would have returned $22,000 this year. If accounting profits for the year were $50,000, then her economic profits were (based solely on the given figures)

A) $107,000.
B) −$7,000.
C) $ 57,000.
D) $50,000.

E) A) and B)
F) C) and D)

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Question 102

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Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

A) $100,000 and its economic profits were $0.
B) $200,000 and its economic profits were $0.
C) $100,000 and its economic profits were $100,000.
D) $0 and its economic loss was $200,000.

E) A) and B)
F) None of the above

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Question 103

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When the total product is at its maximum level, the marginal product is zero.

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. $\begin{array} { |c | c| } \hline \text { Nuriber of Warkers } & \text { Units of Output } \\\hline 0 & 0 \\\hline 1 & 40 \\\hline 2 & 90 \\\hline 3 & 126 \\\hline 4 & 150 \\\hline 5 & 165 \\\hline 6 & 180 \\\hline\end{array}$ Diminishing marginal returns become evident with the addition of the

Which of the following statements is false?

Production costs to an economist

Which of the following is most likely to be a variable cost?

The following table shows the short-run total cost data for a firm. All of the following are correct, except that the firm has

(Consider This) Past costs that are not affected by new decisions are known as

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying,

Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10. $\begin{array}{|c|c|}\hline \text { Output } & \text { ATC } \\\hline 1 & \$ 40 \\\hline 2 & 27 \\\hline 3 & 29 \\\hline 4 & 31 \\\hline 5 & 38 \\\hline\end{array}$ The total cost of producing 4 units of output is

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's

Which of the following is not a source of economies of scale?

The following statements about the "sunk cost fallacy" are true, except

Over the range of positive, but diminishing, marginal returns for an input, the total product curve increases at a decreasing rate.

If start-up firms can quickly shift the short-run cost curves up and to the left, they would improve their chances of becoming profitable.

3-D printers are capable of producing real output like chairs or machine parts using a computer-controlled special printer at low cost even if you produce only one unit of output.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are

Fixed costs are those costs that are

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The economic profits of Harvey's firm in the first year were