Exam 7: The Production Process: the Behavior of Profit-Maximizing Firms

Refer to Scenario 7.1 below to answer the question(s) that follow. SCENARIO 7.1: You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. -Refer to Scenario 7.1. Your accounting profit last year was

A firm ________ if it earns zero economic profit.

Refer to the information provided in Figure 7.5 below to answer the question(s) that follow. Figure 7.5 -Refer to Figure 7.5. Increasing returns continue until the ________ worker is hired.

Refer to Scenario 7.4 below to answer the question(s) that follow. SCENARIO 7.4: You own and are the only employee of a company that sells custom embroidered pet sweaters. Last year your total revenue was $120,000. Your costs for equipment, rent, and supplies were $30,000. To start this business you invested an amount of your own capital that could pay you a $50,000 a year return. -Refer to Scenario 7.4. Your economic profit last year was

Total revenue minus total cost is equal to

If Microsoft is earning a rate of return greater than the return necessary for the business to continue operations in the long run, then

The Cakery Bakery sells 200 muffins at a price of $2 per muffin. Its explicit costs for producing 200 muffins are $350. The cakery bakery's economic profits are

If Harold runs a grocery store and is making a normal rate of return, we can infer that he is also making an economic profit.

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. If the price of capital is $40, then along isocost line AB total cost is

Refer to the information provided in the table below to answer the following question. Table 7.3 L 0 1 2 3 4 5 Q 0 10 20 30 40 50 -Refer to Table 7.3. Suppose output varies, ceteris paribus, with labor input in the following manner displayed above. After how many units of labor do diminishing returns set in?

You own a business that distributes restaurant menus to houses and apartments. You have an incentive to substitute labor for capital if the

Use the information provided in Table 7.4 below to answer the question(s) that follow. Table 7.4 Inputs Required to Produce a Product Using Alternative Technologies Technology Units d Capital Number of Employees A 8 36 B 12 24 C 16 16 D 24 12 -Refer to Table 7.4. If the hourly price of capital is $20 and the hourly wage rate is $14, which production technology should be selected?

Average product of labor is calculated as

Refer to the information provided in Figure 7.9 below to answer the question(s) that follow. Figure 7.9 -Refer to Figure 7.9. The firmʹs isocost line could shift from CD to AB if

Refer to Scenario 7.1 below to answer the question(s) that follow. SCENARIO 7.1: You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. -Refer to Scenario 7.1. During the year your economic costs were

The marginal rate of technical substitution is the ratio of

In the long run

Use the information provided in Table 7.4 below to answer the question(s) that follow. Table 7.4 Inputs Required to Produce a Product Using Alternative Technologies Technology Units d Capital Number of Employees A 8 36 B 12 24 C 16 16 D 24 12 -Refer to Table 7.4. Which technology is the most labor intensive?

You own a building that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore. The value of the building in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to open a hardware store. The opportunity cost of using this building for a hardware store is

Refer to Scenario 7.8 below to answer the question(s) that follow. SCENARIO 7.8: A swimming pool cleaning company has the following production possibilities. With one, two, three, and four workers, the company can clean 5, 12, 17, and 20 pools per day, respectively. -Refer to Scenario 7.8. The average product of labor with three workers is