WorksheetsCost of Production
Total questions: 40
Worksheet time: 3hrs 20mins
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
For a firm, the production function represents the relationship between
quantity of inputs and total cost.
implicit costs and explicit costs.
quantity of output and total cost.
quantity of inputs and quantity of output.
Refer to the Figure. Which of the following could explain why the total product curve would shift from TP1 to TP2?
There is less capital equipment available to the firm.
The firm has developed improved production technology.
Labor skills have become rusty and outdated in the firm.
The firm is now receiving a higher price for its product.
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
8 units of output.
10 units of output.
122 units of output.
132 units of output.
The marginal product of any input is the
increase in total cost associated with a one-unit increase in production.
change in total output associated with a $1.00 increase in total cost.
increase in total cost resulting from the hiring of an additional worker.
increase in total output obtained from one additional unit of that input.
Refer to the Table. At which number of workers does diminishing marginal product begin?
1
2
3
4
Refer to Table. If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output?
240 units
230 units
190 units
170 units
If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits
diminishing marginal product.
economies of scale.
diseconomies of scale.
diminishing profitability.
Refer to the attached Table. Assume that fixed costs are $500, and variable costs are $100 per worker. For this firm, what are the shapes of the production function and the total-cost curve?
Both the production function and total-cost curve are increasing at a decreasing rate.
The production function is increasing at a decreasing rate, whereas the total-cost function is increasing at an increasing rate.
The production function is increasing at an increasing rate, whereas the total-cost function is increasing at a decreasing rate.
Both the production function and total-cost curve are increasing at an increasing rate.
Refer to the attached Figure. Which of the following is true of the production function (not pictured) that underlies this total cost function?
(i) Total output increases as the quantity of inputs increases but at a decreasing rate.
(ii) Marginal product is diminishing for all levels of input usage.
(iii) The slope of the production function decreases as the quantity of inputs increases.
(i) only
(ii) only
(i) and (iii) only
(ii) and (iii) only
(i), (ii), and (iii)
A total-cost curve shows the relationship between the
quantity of an input used and the total cost of production.
quantity of output produced and the total cost of production.
total cost of production and profit.
total cost of production and total revenue.
Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Variable costs for Sonia's yoga studio include the cost of the
(i) tank tops.
(ii) wages paid to the other yoga instructors.
(iii) lease on the studio space.
(iv) insurance that the landlord requires Sonia to carry for the studio.
(i) only
(i) and (ii) only
(iii) and (iv) only
(i), (ii), (iii), and (iv)
Total cost can be divided into two types of costs:
fixed costs and variable costs.
fixed costs and marginal costs.
variable costs and marginal costs.
average costs and marginal costs.
Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is
$100
$200
$300
$400
$500
Which of the following expressions is correct?
marginal cost = (change in quantity of output)/(change in total cost)
total cost = variable cost + marginal cost
average variable cost = (quantity of output)/(total variable cost)
average total cost = (total cost)/(quantity of output)
The Wacky Widget company has total fixed costs of $100,000 per year. The firm’s average variable cost is $10 for 10,000 widgets. At that level of output, the firm’s average total costs equal
$10
$15
$20
$25
Refer to Table. What is the value of P?
$50
$140
$360
$410
Refer to Figure. Curve D represents which type of cost curve?
marginal cost
average total cost
average fixed cost
average variable cost
Refer to Figure. Quantity C represents the output level where the firm
maximizes profits.
minimizes total costs.
minimizes marginal costs.
produces at the efficient scale.
Refer to Figure. Which of the following statements is correct?
Marginal cost is rising for quantities higher than D because marginal cost is higher than average total cost.
Marginal cost is minimized at B because at that quantity, marginal cost equals average variable cost.
Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.
All are correct
Which of the following is not a property of a firm's cost curves?
Economies of scale will exist when average total cost falls as output rises.
Average total cost is U-shaped.
Average total cost will cross marginal cost at the minimum of marginal cost.
Marginal cost must eventually rise as a result of diminishing marginal product.
The most likely explanation for economies of scale is
coordination problems.
specialization of labor.
increasing marginal cost.
decreasing marginal cost.
If long-run average total cost decreases as the quantity of output increases, the firm is experiencing
economies of scale.
diseconomies of scale.
coordination problems arising from the large size of the firm.
fixed costs greatly exceeding variable costs.
In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits
efficient scale.
constant returns to scale.
economies of scale.
diseconomies of scale.
If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would
slope downward.
be horizontal.
slope upward.
slope downward for low output levels and upward for high output levels.
In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits
economies of scale.
diseconomies of scale.
constant returns to scale.
efficient scale.
Firms may experience diseconomies of scale when
they are too small to take advantage of specialization.
large management structures are bureaucratic and inefficient.
average fixed costs begin to rise again.
there are too few employees, and managers do not have enough to do.
Refer to Figure. The firm experiences economies of scale at which output levels?
output levels less than M
output levels between M and N
output levels greater than N
All of the above are correct as long as the firm is operating in the long run.
Refer to Table. Which firm has constant returns to scale over the entire range of output?
Firm 1
Firm 2
Firm 3
Firm 4
Refer to Figure. The firm experiences diseconomies of scale if it changes its level of output from
Q1 to Q2.
Q2 to Q3
Q3 to Q4.
Q4 to Q5.
One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,
the size of the factory is fixed.
output is not variable.
the number of workers used to produce the firm's product is fixed.
there are no fixed costs.
