Micro Unit 3: Production, Profit, and Short-run Costs

What happens to total product when marginal product becomes negative?

• Increases

• Decreases

• Remains unchanged

• Reaches a peak

• Reaches a minimum

Which of the following describes an eventual decline in the productivity of factor inputs as additional units of variable factors are added to fixed resources?

• Law of diminishing marginal utility

• Law of diminishing marginal returns

• Laffer curve

• Law of diminishing total product

• Law of demand

If TP is 10 with two workers and is 15 with three workers, what is MP?

• 10

• 15

• 5

• 150

• -5

If TP is 40 with two workers, what is AP?

• 20

• 80

• 38

• 7

• Impossible to determine

Which of the items listed below would be subtracted from total revenue to calculate a firm's accounting profits?

• Wages paid to employees

• Forgone wages

• Salary from job given up in order to run the firm

• Forgone rent

• All are included

Which of the following must be true in order for a firm to earn economic profit?

• The firm's price must be greater than its marginal cost.

• The firm's marginal revenue must be greater than its marginal cost.

• The firm's marginal revenue must be equal to its marginal cost.

• The firm's total revenue must be greater than its total costs.

• The firm's total revenue must be equal to its total costs.

Tom made $20,000 in revenue at his pizza store. Materials were $5,000 and wages were $3,000.Tom could have earned $10,000 by working at a competitor. What is Tom's accounting profit?

• $0

• $20,000

• $12,000

• $18,000

• $2,000

Which of the following is TRUE regarding accounting and economic profits?

• Economic profits are calculated by subtracting only explicit costs from total revenue.

• Accounting profits are calculated by subtracting only implicit costs from total revenue.

• Economic profits exceed accounting profits.

• Economic profits are calculated by subtracting explicit and implicit costs from total revenue

• Economic profits are equal to accounting profits plus explicit costs.

Sara gives up a job that pays her a salary of $350,000 in order to open her own business making cakes. Her business has revenue of $500,000. She rents office space for $2,000 a month. The materials cost $26,000. Based on this information, what are Sara's yearly accounting and economic profits?

• AP = $100,000 EP = $-350,000

• AP = $450,000 EP = $100,000

• AP = $450,000 EP = $800,000

• AP = $100,000 EP = $350,000

• AP = $0 EP = $0

Tom made $20,000 in revenue at his pizza store. Materials were $5,000 and wages were $3,000.Tom could have earned $10,000 by working at a competitor.

What is Tom's ECONOMIC profit?

• $0

• $20,000

• $12,000

• $18,000

• $2,000