# Topic 7

Flashcard maker : Lily Taylor
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
a) \$32,500
b) \$7,500
c) \$57,500
d) \$25,000
b) \$7,500
Average total cost equals
a) (fixed costs + variable costs) divided by quantity produced
b) change in total costs divided by quantity produced
c) (fixed costs + variable costs) divided by change in quantity of input
d) change in total costs divided by change in quantity produced
a) (fixed costs + variable costs) divided by quantity produced
As Bubba’s Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use machinery. When this occurs, Bubba’s Bubble Gum Company encounters

a) economies of scale
b) diminishing marginal product
c) increasing marginal product
d) diseconomies of scale

b) diminishing marginal product
The amount of money that a firm receives from the sale of its output is called
a) production costs
b) total gross profit
c) total revenue
d) total net profit
c) total revenue
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 costs are
a) \$25,000
b) \$32,500
c) \$7,500
d) \$57,500
a) \$25,000
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 revenues are
a) \$25,000
b) \$57,500
c) \$7,500
d) \$32,500
d) \$32,500
A firm produces 400 units of output at a total cost of \$1,200. If total variable costs are \$1,000, then which of the following is true?

a) Average fixed cost is \$0.50
b) Average variable cost is \$2.00
c) Average total cost is \$2.50
d) Average total cost is \$0.50

a) Average fixed cost is \$0.50
If marginal cost (MC) is equal to average total cost (ATC), then

a) average total cost (ATC) is at its minimum.
b) marginal cost (MC) is zero.
c) average variable cost (AVC) is greater than average total cost (ATC).
d) marginal cost (MC) is at its minimum.

a) average total cost (ATC) is at its minimum.
Total revenue equals
a) output – input
b) (price x quantity) – total cost
c) price x quantity
d) price divided by quantity
c) price x quantity
The amount of money that a firm pays to buy inputs is called
a) fixed cost
b) marginal cost
c) total cost
d) variable cost
c) total cost
The amount of money that a firm pays to buy inputs is called
a) marginal cost
b) total cost
c) fixed cost
d) variable cost
b) total cost
The value of a business owner’s time is an example of
a) total profit
b) an implicit cost
c) an explicit cost
d) total revenue
b) an implicit cost
Pete owns a shoe shine business. Which of the following costs would be implicit costs?

(i) shoe polish
(ii) rent on the shoe stand
(iii) wages Pete could earn delivering newspapers
(iv) interest that Pete’s money was earning before he spent his savings to set up the business

(iii) and (iv) only
If a firm produces no output, which of the following costs will be zero?
a) Opportunity cost
b) Variable cost
c) Total cost
d) Fixed cost
b) Variable cost
A firm produces 400 units of output at a total cost of \$1,200. If total variable costs are \$1,000, then which of the following is true?
a) Average fixed cost is \$0.50
b) Average variable cost is \$2.00
c) Average total cost is \$0.50
d) Average total cost is \$2.50
a) Average fixed cost is \$0.50
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 money from his investment account, where he had earned \$600 in interest per year, and borrowed \$30,000 from the bank, to which he pays 5% interest per year. Last year Walter paid \$25,000 for supplies and had total revenue of \$60,000. Walter asked Andrew the accountant and Greg the economist to calculate his painting business’ profits from last year.
Andrew says his accounting profit is \$33,500, and Greg says his economic profit is -\$7,100
Daphne sells 200 glasses of lemonade at \$0.50 each. Her total costs are \$25. Her profits are

a) \$75
b) \$25
c) \$175
d) \$100

a) \$75
In the short run, a firm incurs fixed costs
a) only if it incurs variable costs
b) whether it produces output or not
c) only if it produces output at the profit maximization quantity
d) only if it produces a positive quantity of output
b) whether it produces output or not
The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is
a) an implicit cost
b) an explicit cost
c) forgone accounting profit
d) an accounting cost
a) an implicit cost
Economists normally assume that the goal of a firm is to
a) minimize its explicit costs
b) to maximize its total revenue
c) minimize its total costs
d) maximize its profit
d) maximize its profit
Economies of scale occur when

a) require an outlay of money by the firm
b) include all of the firm’s opportunity cost
c) include the value of the business owner’s time
d) include lost opportunities to invest in capital markets

a) require an outlay of money by the firm
Economic profit

a) will never exceed accounting profit
b) is most often equal to accounting profit
c) is a less complete measure of profitability than accounting profit
d) is always at least as large as accounting profit

a) will never exceed accounting profit