Micro Chapter 13 homework – Flashcards
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Economists assume that the typical person who starts her own business does so with the intention of
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maximizing profits
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Total revenue equals
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price x quantity
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The amount of money that a firm pays to buy inputs is called
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total cost
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Profit is defined as total revenue
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minus total cost
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Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are
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$25
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An example of an opportunity cost that is also an implicit cost is
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the value of the business owner's time
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Jane decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jane's economic profit from running her own business?
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$5,000
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Dolores used to work as a high school teacher for $40,000 per year but quit in order to start her own catering business. To invest in her factory, she withdrew $20,000 from her savings, which paid 3 percent interest, and borrowed $30,000 from her uncle, whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Louis the accountant and Greg the economist to calculate her profit for her.
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Louis says her costs are $25,900, and Greg says her costs are $66,500
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A difference between explicit and implicit costs is that
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implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do
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Economic profit is equal to
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total revenue minus the opportunity cost of producing goods and services
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Accounting profit is equal to
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total revenue minus the explicit cost of producing goods and services
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A production function describes
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how a firm turns inputs into output
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What is the marginal product of the second worker?
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25
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What is the marginal product of the third worker?
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NOT 35
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As the number of workers increases,
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NOT marginal product increases but at a decreasing rate
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The marginal product of labor can be defined as
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change in output/change in labor
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What is total output when 2 workers are hired?
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70
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Total cost can be divided into two types of costs:
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fixed costs and variable costs
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Marginal cost is equal to
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DTC/DQ
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What is the value of B?
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$100
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What is the value of C?
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$100
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What is the value of G?
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$270
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What is the average fixed cost of producing 8 gigaplots at Jimmy's Gigaplot factory?
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$3.15
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What is the average total cost of producing 6 gigaplots at Jimmy's Gigaplot factory?
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NOT $22
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What is the marginal cost of the 4th gigaplot at Jimmy's Gigaplot factory?
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$19
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The nature of a firm's cost (fixed or variable) depends on the
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time horizon under consideration
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How long does it take a firm to go from the short run to the long run?
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It depends on the nature of the firm
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Economies of scale occur when
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long-run average total costs fall as output increases
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Constant returns to scale occur when the firm's
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long-run average total costs are constant as output increases
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Diseconomies of scale occur when a firm's
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long-run average total costs are increasing as output increases
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Diseconomies of scale occur when a firm's
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long-run average total costs are increasing as output increases
