ECON 103 Lecture Notes - Lecture 6: Average Cost, Average Variable Cost, Marginal Cost

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rosebutterfly429

24 Feb 2016

School

Simon Fraser University

Department

Economics

Course

ECON 103

Professor

Junjie Liu

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Document Summary

Week 11: joe runs a small boat factory. He can make ten boats per year and sell them for ,000 each. It costs joe ,000 for the raw materials (fiberglass, wood, paint, and so on) to build the ten boats. Joe has invested ,000 in the factory and equipment needed to produce the boats: ,000 from his own savings and ,000 borrowed at 10 percent interest (assume that joe could have loaned his money out at 10 percent, too). Joe could make ,000 plus 10 percent interest on his ,000 savings for a total of ,000 if he worked for competing boat factory. His factory makes an accounting profit of only ,000 per year, after taking into account the implicit costs he will lose. In the short run, the size of the production facility is fixed so the firm will experience diminishing returns and increasing average total costs if the firm expands production.

Related Questions

Paul's accountant will most likely includes which of the followingcosts on his financial statements?Paul owns a car wash.
A) dividends Paulâs money was earning in the stock market beforePaul sold his stock and bought a car wash
B) All of the given answers are correct.
C) the cost of cleaning supplies
D) wages Paul could earn washing windows
2.
Farmer Jack decided to use his land to grow corn rather than use itto grow vegetables, the amount of money that he gave up by notgrowing vegetable is
A) forgone accounting profit.
B) an explicit cost.
C) an implicit cost.
D) an accounting cost
3.
Intel sold 2 million chips at a price of $10 per chip. For lastyear, the firmâs
A) explicit costs amounted to $20 million.
B) accounting profit amounted to $20 million.
C) economic profit amounted to $20 million.
D) total revenue amounted to $20 million.
4.
Mandy earned $40,000 per year in her Sales Manager job. She quither job in order to start her own catering business. To buy thenecessary equipment, she withdrew $20,000 from her savings, (whichpaid 3 percent interest) and borrowed $30,000 from her uncle, whomshe pays 3 percent interest per year. Last year she paid $25,000for ingredients and had revenue of $60,000. She asked Louis theaccountant and Greg the economist to calculate her profit forher.
A) Louis says her profit is $35,000 and Greg says she lost$5,000.
B) Louis says her profit is $34,100 and Greg says she lost$6,500.
C) Louis says her profit is $33,500 and Greg says her profit is33,500.
D) Louis says her profit is $34,100 and Greg says her profit is$6,500.
5.
In the short run
A) The firm can vary the size of its factory, but not the number ofworkers it employs.
B) The firm can vary neither the size of its factory nor the numberof workers it employs.
C) The firm can vary both the size of its factory and the number ofworkers it employs.
D) The firm can vary the number of workers it employs, but not thesize of its factory.
6.
If a firmâs production function is shown on a graph and the numberof workers hired is the only variable input, then

A) total cost is measured on the horizontal axis and the number ofworkers is measured on the vertical axis.
B) the number of workers is measured on the horizontal axis and thequantity of output is measured on the vertical axis.
C) the number of workers is measured on the horizontal axis andvariable cost is measured on the vertical axis.
D) the number of workers is measured on the horizontal axis andprofit is measured on the vertical axis.
7.
marginal cost is
A) The amount by which total cost rises when the firm produces oneadditional unit of output.
B) is calculated the same way as average cost
C) total cost minus fixed cost.
D) The amount of total cost divided by units of output.
8.
If a firm is at the efficient scale of output it means that thequantity of output is such that it
A) maximizes marginal product.
B) maximizes profit.
C) minimizes average total cost(ATC) and average variable cost isequal to ATC
D) minimizes average total cost (ATC)and marginal cost is equal tothe ATC
9.
When marginal cost is less than average total cost,
A) average total cost is rising.
B) average variable cost must be falling.
C) average total cost is falling.
D) marginal cost must be falling.
10.
Regarding a the firm's cost of production,which of the followingstatements is false?
A) Marginal cost is independent of fixed costs.
B) In the long run, there are no fixed costs.
C) Diminishing marginal product explains increasing marginalcost.
D) Economies of scale is a short-run concept.

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ECON 103 Lecture Notes - Lecture 6: Average Cost, Average Variable Cost, Marginal Cost

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