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Exam 9: Businesses and the Costs of Production

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Question 201

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Harvey quit his job at State University, where he earned $65,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $70,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 20,000 units of software at $50 for each unit. Of the $50 per unit, $45 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.The accounting profit of Harvey's firm in the first year was

A) $100,000.
B) $77,000.
C) $23,000.
D) $1,000,000.

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Question 202

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Which of the following is a predicted result of the increased use of additive manufacturing (using 3-D printers) ?

A) Economies of scale in manufacturing will be eliminated, driving up production costs and prices.
B) lower prices of manufactured goods through the elimination of large fixed costs and transportation costs
C) monopolization of manufactured goods industries, as few individuals can afford additive manufacturing technology
D) significant increases in the fixed costs of producing manufactured goods

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Question 203

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If a technological advance reduces the amount of variable resources needed to produce any level of output, then the

Minimum efficient scale varies by industry.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are.

This question is based on the following table, which provides information on the production of a product that requires one variable input. There are negative marginal returns when the

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. Marginal cost will be at a minimum for this firm when it is hiring

Economic cost can best be defined as

Refer to the provided table. The average variable cost of producing 3 units of output is

Refer to the provided graph. At which point is average product (AP) at its maximum?

Over the range of positive, but diminishing, marginal returns for an input, the total product curve increases at a decreasing rate.

Assume that the only variable resource used to produce output is labor. Refer to the provided table. Diminishing marginal returns set in with the addition of the

Plant sizes get larger as you move from ATC-1 to ATC-4. In the long run, the firm should use plant size ATC-3 for what level of output?

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes

An industry is expected to expand if firms in the industry are earning positive

Answer the question on the basis of the following cost data. The total variable cost of producing 5 units of output is

Average fixed costs diminish continuously as output increases.

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.The implicit costs of Harvey's firm in the first year were