Question 1

Suppose a firm is producing 10 000 units of output.At this level of output,average total cost is $200 and average fixed cost is $20.It can be concluded that total variable cost is

Accepted Answer

The answer of Suppose a firm is producing 10 000...

Question 2

When a firm's total- product curve is increasing at a decreasing rate

Accepted Answer

When the total product curve is increasing at a decreasing rate, it means that each additional unit of the variable input is adding less and less to the total output. This implies that the marginal product is positive but declining.

Question 3

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}
\hline \text { Total Revenues }(\$) & 500000 \
\hline & \
\hline \text { Total Costs }(\$) & \
\hline \text { wages and salaries } & 200000 \
\hline \text { risk- free return of } 6 \% \text { on owners' capital of } 250000 & 15000 \
\hline \text { rent } & 105000 \
\hline \text { depreciation of capital equipment } & 25000 \
\hline \text {-risk premium of } 8 \% \text { on owners' capital of } 250000 & 20000 \
\hline \text { - intermediate inputs } & 150000 \
\hline \text { forgone wages of owners in alternative employment } & 80000 \
\hline \text { - interest on bank loan } & 10000 \
\hline
\end{array}$ TABLE 7- 1
-Refer to Table 7- 1.The economic profits for this family- owned firm are

Accepted Answer

Economic profit is calculated as total revenues minus total economic costs (explicit and implicit costs). Total costs include wages, risk-free return, rent, depreciation, risk premium, intermediate inputs, forgone wages, and interest. Total costs = $200,000 + $15,000 + $105,000 + $25,000 + $20,000 + $150,000 + $80,000 + $10,000 = $605,000. Economic profit = $500,000 - $605,000 = -$105,000.

Question 4

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}
\hline \text { Total Revenues }(\$) & 500000 \
\hline & \
\hline \text { Total Costs }(\$) & \
\hline \text { wages and salaries } & 200000 \
\hline \text { risk-free return of } 6 \% \text { on owners' capital of } 250000 & 15000 \
\hline \text { rent } & 105000 \
\hline \text { depreciation of capital equipment } & 25000 \
\hline \text { risk premium of } 8 \% \text { on owners' capital of } 250000 & 20000 \
\hline \text { - intermediate inputs } & 150000 \
\hline \text { forgone wages of owners in alternative employment } & 80000 \
\hline \text { - interest on bank loan } & 10000 \
\hline
\end{array}$ TABLE 7- 1
-Refer to Table 7- 1.The explicit costs for this family- owned firm are

Accepted Answer

Explicit costs include wages and salaries, rent, depreciation, intermediate inputs, and interest on the bank loan, totaling $490,000.

Question 5

The table below shows output,marginal cost,and average variable cost for the production of pairs of shoes.All costs are in dollars. $$\begin{array} { | c | c | c | } 
\hline \text { Output } & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} \
\hline 50 & 60 & 140 \
\hline 70 & 45 & 115 \
\hline 90 & 35 & 95 \
\hline 110 & 30 & 80 \
\hline 130 & 35 & 65 \
\hline 150 & 60 & 60 \
\hline 170 & 105 & 65 \
\hline 190 & 180 & 75 \
\hline 210 & 230 & 90 \
\hline 230 & 290 & 110 \
\hline
\end{array}$$ TABLE 7- 6
-Refer to Table 7- 6.The firm's marginal product of its variable factor is maximized when it produces units of output.

Accepted Answer

The marginal product is maximized when the marginal cost is minimized. The marginal cost is lowest at an output of 110 units.

Question 6

Suppose a firm with the usual U- shaped cost curves is producing a level of output such that its short run costs are as follows: ATC = $0.37 per unit AVC = $0.32 per unit AFC = $0.05 per unit MC = $0.43 per unit
Given these short run costs,which of the following statements is true?

Accepted Answer

The answer of Suppose a firm with the usual U-...

Question 7

The table below provides the total revenues and costs for a small landscaping company in a recent year. $\begin{array}{|l|l|}
\hline \text { Total Revenues }(\$) & 250000 \
\hline & \
\hline \text { Total Costs }(\$) & \
\hline \text { - wages and salaries } & 150000 \
\hline \text { risk- free return of } 2 \% \text { on owner's capital of } \$ 20000 & 400 \
\hline \text { - interest on bank loan } & 1500 \
\hline \text { cost of supplies } & 27000 \
\hline \text { depreciation of capital equipment } & 8000 \
\hline \text { additional wages the owner could have earned in next } & 30000 \
\text { best alternative } & \
\hline \text { risk premium of } 4 \% \text { on owner's capital of } \$ 20000 & 800 \
\hline
\end{array}$ TABLE 7- 2
-Refer to Table 7- 2.The economic profits for this firm are

Accepted Answer

Economic profit = Total revenue - (Total explicit costs + Implicit costs)= 250000 - (150000 + 400 + 1500 + 27000 + 8000 + 30000 + 800)= 250000 - 217700= 32300

Question 8

If increasing quantities of a variable factor are applied to a given quantity of fixed factors,then the law of diminishing returns tells us that

Accepted Answer

The law of diminishing returns states that as more and more units of a variable input (factor) are added to fixed inputs, the marginal product of the variable input will eventually decrease. This means that each additional unit of the variable input will result in a smaller increase in output. As a result, the average product of the variable input will also eventually decrease since the fixed input cannot keep up with the increased units of the variable input. Therefore, the correct choice is B.

Question 9

"An objective of firms is to maximize profits." This statement

Accepted Answer

The statement reflects the basic assumption used by economists to understand the behavior of firms. While not all firms may prioritize profit maximization, this assumption allows for useful predictions and understanding of business behavior.

Question 10

With regard to economic decision making for firms,the short run is

Accepted Answer

In the short run, at least one significant factor of production is fixed, meaning that it cannot be varied. This can include things like a factory's physical size or the number of specialized workers employed. Other factors, however, can still be adjusted, such as the amount of raw materials used or the number of non-specialized workers employed. The short run is typically defined as a period of time less than one year.

Question 11

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array} { | c | c | } 
\hline \text { Labour per unit of time } & \text { Total output } \
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 75 \
\hline 3 & 175 \
\hline 4 & 250 \
\hline 5 & 305 \
\hline
\end{array}$$ TABLE 7- 4
-Refer to Table 7- 4.The marginal product of labour is at its maximum when the firm changes the amount of labour hired from

Accepted Answer

The answer of The following data show the total output...

Question 12

The table below shows output,marginal cost,and average variable cost for the production of pairs of shoes.All costs are in dollars. $$\begin{array} { | c | c | c | } 
\hline \text { Output } & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} \
\hline 50 & 60 & 140 \
\hline 70 & 45 & 115 \
\hline 90 & 35 & 95 \
\hline 110 & 30 & 80 \
\hline 130 & 35 & 65 \
\hline 150 & 60 & 60 \
\hline 170 & 105 & 65 \
\hline 190 & 180 & 75 \
\hline 210 & 230 & 90 \
\hline 230 & 290 & 110 \
\hline
\end{array}$$ TABLE 7- 6
-Refer to Table 7- 6.If the firm produces 130 pairs of shoes,and the fixed cost is $550,then the firm's total cost is

Accepted Answer

The answer of The table below shows output,marginal cost,and average...

Question 13

Suppose a production function for a firm takes the following algebraic form: Q = (0.5)KL - 40L,where Q is the output of paintbrushes per week.Now suppose the firm is operating with 100 units of capital (K = 100)and 30 000 units of labour (L = 30 000).What is the output of paintbrushes per week?

Accepted Answer

Substituting K = 100 and L = 30,000 into the production function: 
Q = (0.5)(100)(30,000) - 40(30,000) 
Q = 1,500,000 - 1,200,000 
Q = 300,000

Therefore, the output of paintbrushes per week is 300,000.

Question 14

Consider a basket- producing firm with fixed capital.If the firm can produce 36 baskets per day with 3 workers and then increases production to 44 baskets per day with 4 workers,then which of the following statements is true?

Accepted Answer

The answer of Consider a basket- producing firm with fixed...

Question 15

Consider the production costs for a firm,one of which is the cost of depreciation.Depreciation costs are

Accepted Answer

Depreciation costs are estimated expenses of the decrease in value of a firm's physical assets, such as equipment or buildings, over their useful lifetime.

Question 16

Suppose a production function for a firm takes the following algebraic form: Q = (0.25)K × (1.5)L2,where Q is the output of garage doors produced per month.Now suppose the firm is operating with 10 units of capital (K = 10)and 8 units of labour (L = 8).What is the output of garage doors per month?

Accepted Answer

Plug in K = 10 and L = 8 into the production function:
Q = (0.25)(10) × (1.5)(8)2
Q = 240
Thus, the firm is producing 240 garage doors per month. The answer is choice D.

Question 17

Which of the following factors of production is most likely to be variable in the short run?

Accepted Answer

Labor is the most likely factor of production to be variable in the short run because it's relatively easy to adjust the amount of labor a firm uses. In contrast, it's very difficult for a firm to quickly or easily adjust its supply of capital equipment, land, or technology. Entrepreneurial ability is a factor that influences all other factors but is not a factor itself, so it is not relevant to this question.

Question 18

Consider the short- run costs of a firm.Suppose the firm's total fixed costs are $100 and average variable costs are constant regardless of output.Which of the following is then true?

Accepted Answer

In the short run, if average variable costs are constant, increasing output will spread the fixed costs over more units, thus decreasing average total cost.

Question 19

Consider a basket- producing firm with fixed capital.If the firm can produce 24 baskets per day with 3 workers and then increases production to 36 baskets per day with 4 workers,then which of the following statements is definitely true?

Accepted Answer