Cost of Production

Economists normally assume that the goal of a firm is to

(i) sell as much of its product as possible.

(ii) set the price of the product as high as possible.

(iii) maximize profit.

• (i) and (ii) only

• (iii) only

• (ii) and (iii) only

• (i), (ii), and (iii)

When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision?

• A country's standard of living depends on its ability to produce goods and services.

• Prices rise when the government prints too much money.

• Prices rise when the government prints too much money.

• The cost of something is what you give up to get it.

Total revenue equals

• marginal revenue - marginal cost.

• price/quantity.

• price x quantity.

• output - input.

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

• $7,500.

• $25,000.

• $32,500.

• $67,500.

Billy’s Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy’s Bean Bag Emporium would be

• $26,125.

• $28,500

• $30,000

• -$3,875.

Which of the following would be an example of an implicit cost?

(i) forgone investment opportunities

(ii) wages of workers

(iii) raw materials costs

• (i) only

• (ii) only

• (ii) and (iii) only

• (i) and (iii) only

• (i) , (ii) and (iii)

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business’s profit.

• Tyler says his profit is $25,900, and Greg says his profit is $66,500.

• Tyler says his profit is $35,000, and Greg says he lost $5,900.

• Tyler says his profit is $34,100, and Greg says he lost $6,500.

• Tyler says his profit is $34,100, and Greg says his profit is $34,100.

Which of the following expressions is correct?

• accounting profit = total revenue - implicit costs

• economic profit = accounting profit + explicit costs

• accounting profit = economic profit + implicit costs

• economic profit = total revenue - implicit costs

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%.

Emily’s implicit cost of capital is.....

• $2,000.

• $4,000.

• $12,000

• $14,000

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.

What are Wanda’s total economic profits?

• $150

• $126

• $96

• $54