ECON 111 Chapter Notes - Chapter 13: Marginal Product, Marginal Cost, Production Function

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20 Apr 2016

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Total revenue (for a firm) = the amount a firm receives for the sale of its output. Total cost = the market value of the inputs a firm uses in production. The cost of something is what you give up to get it. Explicit costs = input costs that require an outlay of money by the firm. Implicit costs = input costs that do not require an outlay of money by the firm. The cost of capital as an opportunity cost. An important implicit cost of almost every business is the opportunity cost of the financial capital that has been invested in the business. If someone buys a factory with ,000 of their savings that had been deposited in a bank account with an interest rate of 5%, she would have earned ,000 a year. This forgone ,000 is one of the implicit opportunity costs. Economists and accountants treat costs differently, especially in the treatment of the cost of capital.

Related Questions

Which of the following would be considered an implicit cost?

a. the cost of accounting services.

b. the opportunity cost of financial capital that has been invested in the business.

c. the cost of compliance with government regulations

d. all costs that involve outlays of money by the firm.

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5. Economic profit is equal to

a. total revenue minus the explicit cost of producing goods and services.

b. total revenue minus the opportunity cost of producing goods and services.

c. total revenue minus the accounting cost of producing goods and services.

d. average revenue minus the average cost of producing the last unit of a good or service.

6. Accounting profit is equal to

a. marginal revenue minus marginal cost.

b. total revenue minus the explicit cost of producing goods and services.

c. total revenue minus the opportunity cost of producing goods and services.

d. average revenue minus the average cost of producing the last unit of a good or service.

7. Economic profit

a. will never exceed the accounting profit.

b. is most often equal to accounting profit

c. is always at least as large as accounting profit.

d. is a less complete measure of profitability than accounting profit

8. Which of the following expressions is correct?

a. accounting profit = total revenue - explicit costs

b. economic profit = total revenue - implicit costs

c. economic profit = total revenue - explicit costs

d. Both a and b are correct

Scenario 13-2:

Zach took $400,000 out of the bank and used it to start his new cookie business. The bank account pays 3% interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50. Also during the first year, the cookie business incurred costs that required outlays of money amounting to $9,000.

9. Zach's accounting profit for the year was

10. Zach's economic profit for the year was

Scenario 14-1:

As part of an estate settlement, Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per

11. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?

The difference between total revenue and total cost is _______________________________

20. . A perfectly competitive firm is definitely earning an economic profit when: ________________

A) MR > MC. B) P > ATC. C) P > MC. D) P > AVC.

-Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits are:_________________________________________________

-For the economist, total cost includes______________________________ for an economic profit

-Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation accounting profit is:_______________________________________________________________

-Identify the following market structure

-A market with no close substitutes ____________________________________

-A market that focuses on differentiated products_______________________

-A market with one seller______________________________

-A market where there is collusion________________________

-A market that involves the auto industry_____________________

-A market where you are a price taker_____________________________

-A market where advertising is a strong incentive____________________

Why can fixed costs be considered as an entry fee?

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ECON 111 Chapter Notes - Chapter 13: Marginal Product, Marginal Cost, Production Function

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