Q: If Jon’s popcorn truck pays $$200 per day for the truck (fixed cost) and 50 $$per worker per day, what is the total cost if he hires 4 workers?

$$ TC = FC + VC = 200 + (4 \times 50) = 200 + 200 = 400 $$

Question 1

Jelani owns a gelato shop. She produces 15,000 pints of gelato per year and sells them for $$5 each. Her explicit costs are 20$$,000 for raw materials, $$12,000 for rent, and 5$$,000 for interest paid on a loan. Her implicit costs are $$25,000 (foregone salary) and 3$$,000 (forgone interest). What is Jelani's economic profit for the year?

Accepted Answer

$10,000

Question 2

Which of the following best describes the difference between accounting profit and economic profit?

Accepted Answer

Accounting profit includes only explicit costs, while economic profit includes both explicit and implicit costs.

Question 3

Suppose the equilibrium rent on office space increases by $500/month. If you own your office space, what happens to your accounting profit and economic profit?

Accepted Answer

Accounting profit does not change; economic profit falls by $500/month.

Question 4

Which formula correctly expresses marginal cost (MC)?

Accepted Answer

$$ MC = \frac{\Delta TC}{\Delta Q} $$

Question 5

A firm’s average total cost (ATC) is minimized at the output level where:

Accepted Answer

Marginal cost (MC) equals average total cost (ATC).

Question 6

Which of the following is an example of an implicit cost?

Accepted Answer

The salary the owner could have earned working elsewhere.

Question 7

If a firm’s total cost is $$200 when output is zero, and 350 $$when output is 3 units, what is the average variable cost (AVC) when output is 3 units?

Accepted Answer

$$ AVC = \frac{TC - FC}{Q} = \frac{350 - 200}{3} = 50 $$

Question 8

The law of diminishing marginal product states that:

Accepted Answer

The marginal product of an input eventually declines as the quantity of the input increases.

Question 9

Which of the following best describes economies of scale?

Accepted Answer

Long-run average total cost falls as the quantity of output increases.

Question 10

A firm is experiencing diseconomies of scale. What is likely happening?

Accepted Answer

Long-run average total cost is rising as output increases.

Question 11

If Jon’s popcorn truck pays $$200 per day for the truck (fixed cost) and 50 $$per worker per day, what is the total cost if he hires 4 workers?

Accepted Answer

$$ TC = FC + VC = 200 + (4 	imes 50) = 200 + 200 = 400 $$

Question 12

Which of the following is true about fixed costs?

Accepted Answer

They do not vary with the quantity of output produced.

Question 13

Suppose a firm’s total cost function is $$ TC = 100 + 5Q . $$What is the marginal cost (MC) of producing one more unit?

Accepted Answer

$$ MC = 5 $$

Question 14

If a firm’s economic profit is zero, which of the following must be true?

Accepted Answer

Total revenue equals total cost, including both explicit and implicit costs.

Question 15

Which of the following is the correct formula for average total cost (ATC)?

Accepted Answer

$$ ATC = \frac{TC}{Q} $$

Question 16

A firm’s long-run average total cost curve is flat over a range of output. This means the firm is experiencing:

Accepted Answer

Constant returns to scale.

Question 17

Which of the following scenarios best illustrates an explicit cost?

Accepted Answer

A bakery pays $1,000 per month in rent for its storefront.

Question 18

If the marginal product of labor is decreasing as more workers are hired, what is likely happening to marginal cost?

Accepted Answer

Marginal cost is increasing.

Question 19

A firm’s total cost increases from $$80 to 110 $$when output increases from 2 to 3 units. What is the marginal cost of the third unit?

Accepted Answer

$$ MC = \frac{110 - 80}{3 - 2} = 30 $$

Question 20

Which of the following industries is most likely to be dominated by a few large firms due to significant economies of scale?

Accepted Answer

Commercial airlines.

Chapter 14: The Costs of Production: Key Concepts and Applications

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