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# Identifying production costs

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Table 8.1
Mr. B's Taxi Service
Annual Income Statement
Revenue \$100,000
Labor Expense \$50,000
Maintenance Expense \$5,000
Net Income \$45,000

1) Refer to Table 8.1. Suppose Mr. B withdrew \$50,000 from his account that earned 10% to invest into this business. He quit his full-time job that paid \$40,000 to manage this business. Mr. B's economic profit equals:
A) -\$45,000. B) \$0. C) \$45,000. D) \$100,000.

Table 8.2
Number of Workers Total Output
1 8
2 20
3 35
4 45
5 52
6 57
7 60

2) Refer to Table 8.2. If the firm hires seven workers, then:

A) total product is negative. B) marginal product is equal to three C) marginal product is negative. D) marginal product is less than one.

3) Refer to Figure 8.3. Micro Oven's total fixed costs are:
A) \$0. B) \$500.C) \$200. D) indeterminate from this information.

Table 8.3
Number of Earrings TVC MC AVC TFC TC AFC ATC
0 100
1 50
2 95
3 46.67
4 300
5 270

4) Refer to Table 8.3. If Sherry produces zero earrings, her total fixed costs are:
A) \$50. B) \$100. C) \$0. D) indeterminate from this information.

5) Refer to Figure 8.8. Curve 1 is Outdoor Equipment's:
A) average total cost curve. B) average fixed cost curve.C) marginal cost curve. D) average variable cost curve.

6) Refer to Figure 8.9. For this firm, diseconomies of scale set in after __________ units of output.
A) q4 B) q3 C) q1 D) q2

7) Refer to Figure 8.9. The minimum efficient scale for this firm is:
A) q2 units of output.
B) q1 units of output.
C) q3 units of output.
D) an amount that is indeterminate from this information.

8) Refer to Figure 8.8. Curve 2 is Outdoor Equipment's:
A) marginal cost curve. B) average total cost curve.C) average variable cost curve. D) average fixed cost curve.

9) Refer to Figure 8.8. Curve 3 is Outdoor Equipment's:
A) marginal cost curve. B) average fixed cost curve.C) average variable cost curve. D) average total cost curve.

10) Refer to Figure 8.8. The vertical distance AB is Outdoor Equipment's:
A) marginal cost. B) total fixed cost.C) total cost. D) average fixed cost.

11) Refer to Table 8.3. If Sherry produces one pair of earrings, her total variable costs are:
A) \$100. B) \$50.C) \$150. D) indeterminate from this information.

12) Refer to Table 8.3. If Sherry produces two pair of earrings, her marginal cost is:
A) \$122.50. B) \$40. C) \$72.50. D) \$45.

13) Refer to Table 8.3. If Sherry produces three pair of earrings, her total variable costs are:
A) \$175. B) \$140. C) \$225. D) \$26.67.

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#### Solution Preview

Solutions are attached as word document also.

Solutions:
1)Economic Profit = 45000-50000*10%-40000=0

2) Refer to Table 8.2. If the firm hires seven workers, then:

A)Total product is negative. B) Marginal product is equal to three. C) Marginal product is negative. D) Marginal product is less than one.

Marginal Product =(60-57)/(7-6)=3
Answer: B) marginal product is equal to three

3) Refer to Figure 8.3. Micro Oven's total fixed costs are:
A) \$0. B) \$500 C) \$200. D) indeterminate from this information

Fixed costs=1200-700=500