Chapter 13 The Costs of Production

MULTIPLE CHOICE

1. Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for
$5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba’s annual total
revenue is
a. $8,000.
b. $12,000.
c. $20,000.
d. $32,000.

2. Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for
$5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba’s annual total profit
is
a. $8,000.
b. $12,000.
c. $20,000.
d. $32,000.

3. Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and
equipment for his shrimp business. The savings account paid 2% interest. What is Bubba’s annual
opportunity cost of the financial capital that he invested in his business?
a. $20
b. $40
c. $200
d. $400

4. Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time
shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba
gave up is counted as part of the shrimp business’s
a. total revenue.
b. explicit costs.
c. implicit costs.
d. marginal costs.

5. Bubba is a shrimp fisherman who can catch 4,000 pounds of shrimp per year. Bubba is considering
hiring his cousin Bobby to work for him. Bobby can catch 3,000 pounds of shrimp per year. If
Bubba hires Bobby, what will be the total output of his shrimp business?
a. 7,000 pounds
b. 3,500 pounds
c. 3,000 pounds
d. 1,000 pounds

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 Table 13-1
Number of Output Fixed Variable
Workers Cost Cost
0 0 $30 $0
1 100 $30 $15
2 180 $30 $30
3 240 $30 $45
4 280 $30 $60
5 300 $30 $75

6. Refer to Table 13-1. What is the marginal product of the third worker?
a. 80 units
b. 60 units
c. 40 units
d. 20 units

7. Refer to Table 13-1. The marginal products of hiring additional workers are
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. decreasing.
d. constant.

8. Refer to Table 13-1. For the firm whose production function and costs are specified in the table, its
total-cost curve is
a. constant.
b. increasing at a decreasing rate.
c. increasing at an increasing rate.
d. unknown because there is no relationship between a firm’s production function and its
total-cost curve.

9. Refer to Table 13-1. The average variable cost of producing 240 units is
a. $0.13.
b. $0.19.
c. $0.32.
d. $0.80.

10. Refer to Table 13-1. The average total cost of producing 240 units is
a. $0.13.
b. $0.19.
c. $0.32.
d. $0.80.

11. Refer to Table 13-1. For the firm whose production function and costs are specified in the table, its
average-variable-cost curve is
a. constant.
b. decreasing.
c. increasing.
d. U-shaped.

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 12. Refer to Table 13-1. For the firm whose production function and costs are specified in the table, its
average-total-cost curve is
a. constant.
b. decreasing.
c. increasing.
d. U-shaped.

13. Suppose that a firm’s long-run average total costs of producing televisions decreases as it produces
between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. coordination problems.

14. Suppose that a firm’s long-run average total costs of producing small commuter jet airplanes increases
as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. specialization.

15. Adam Smith used a famous example of what type of firm to illustrate economies of scale?
a. Apple
b. a pin factory
c. a lumber mill
d. a British university

PROBLEM

1. Define profit.

ANS: Profit means the money you make when you sell stuff for more than it cost you to make or buy
it.

2. Consider a small family wheat farm. List some examples of explicit costs of farming.

ANS: Some things a small family wheat farm might spend money are things like buying seeds,
fertilizers, pesticides, machinery, paying for the land they use, and paying the people who work there.

3. Consider a small family wheat farm. List some examples of implicit costs of farming.

ANS: The value of the land if they could use it for something else instead, the value of their time and
skills if they worked somewhere else, and even the risk that comes with farming.

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4. Can economic profit ever exceed accounting profit?

ANS: Yes, the economic profit can be higher than the accounting profit. Accounting profits only
consider the things you paid money for, but economic profits consider all costs, including the things
you could have done instead of farming. So if those other things you could have done are worth more
than what you paid for farming, your economic profit is greater than your accounting profit.

-Sofia Portilla-

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