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ECN 104 Lecture Notes - Average Cost, Average Variable Cost, Marginal Product

Course Code
ECN 104
Tsogbadral Galaabaatar

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Chapter 13
1. What is the amount of money that a firm receives from the sale of its output called?
a. total gross profit
b. total net profit
c. total revenue
d. net revenue
2. Susan used to work as a telemarketer, earning $25 000 per year. She gave up that job to start a catering
business. In calculating the economic profit of her catering business, how is the $25 000 income that she
gave up counted, in terms of the catering business?
a. total revenue
b. opportunity costs
c. explicit costs
d. sunk costs
3. What would be an example of an explicit cost of production?
a. the cost of forgone labour earnings for an entrepreneur
b. the lost opportunity to invest in other capital markets when the money is invested in one's
c. the cost of flour for a baker
d. the cost of training programs postponed indefinitely
Scenario 13-1
Joe wants to start his own business. The business he wants to start will require that he purchase a factory
that costs $300 000. To finance this purchase, he will use $100 000 of his own money, on which he has
been earning 10 percent interest per year. In addition, he will borrow $200 000, and he will pay 12
percent interest per year on that loan.
4. Refer to Scenario 13-1. For the first year of operation, what is the explicit cost of purchasing the factory?
a. $12 000
b. $20 000
c. $24 000
d. $44 000
5. Refer to Scenario 13-1. For the first year of operation, what is the opportunity cost of purchasing the factory?
a. $10 000
b. $20 000
c. $24 000
d. $34 000
6. What relationship does a production function measure?
a. inputs and quantity of output
b. inputs and revenue
c. inputs and costs
d. inputs and profit
7. What can the marginal product of labour be defined as?
a. change in profit ÷ change in labour
b. change in output ÷ change in labour

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c. change in labour ÷ change in output
d. change in labour ÷ change in total cost
8. Suppose adding another unit of labour leads to an increase in output that is smaller than increases in output
that resulted from adding previous units of labour. What property does this suggest?
a. diminishing labour
b. diminishing output
c. diminishing marginal product
d. negative marginal product
The figure below depicts a total cost function for a firm that produces cookies.
Figure 13-1
9. Refer to Figure 13-1. What does the changing slope of the total cost curve reflect?
a. decreasing average variable cost
b. decreasing average total cost
c. decreasing marginal product
d. increasing fixed cost
10. Refer to Figure 13-1. Which of the following statements is most consistent with the shape of the total cost
a. Producing an additional cookie is always more costly than producing the previous cookie.
b. Total production of cookies decreases with additional units of input.
c. Producing additional cookies is equally costly, regardless of how many cookies are
already being produced.
d. Producing additional cookies becomes increasingly costly only when the number of
cookies already being produced is large.
11. Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its
factory as fixed. When is this assumption often realistic?
a. in the short run, but not in the long run
b. in the long run, but not in the short run
c. both in the short run and in the long run
d. neither in the short run nor in the long run
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