Exam 11: The Cost of Doing Business

(Figure: Long-Run and Short-Run Average Total Cost Curves) In the figure, at 4,000 units of output, the firm is experiencing:

_____ occur when long-run average cost declines as output increases.

_____ costs are short-run costs that change with the quantity of output.

As additional workers are hired, the _____ declines.

Deborah owns a flower shop with monthly _____ costs that include $1,200 for insurance and $5,000 for rent.

_____ costs are the cost of all inputs in production.

(Figure: Cost Schedule) In the figure, the average fixed cost to produce four units is: Quantity Fixed Cost Variable Cost Marginal Cost 0 \ 11 \ 0 - 1 11 3 \ 3 2 11 8 5 3 11 14 6 4 11 23 9 5 11 36 13

A negative economic profit is referred to as _____ loss.

(Figure: Costs) In the figure, what level of output has the lowest ATC?

(Figure: MPP L) In the figure, what is the marginal physical product (MPP) of the first unit of labor?

Total revenue minus total cost is:

(Figure: Production Function Data 0) In the table, what is the MPP of the fourth unit of labor? Labor (L) Total Product (TP) 0 0 1 85 2 150 3 200 4 240

The additional output from an additional unit of labor, holding the amount of physical capital and other inputs fixed, is:

(Figure: MPP L) In the figure, what is the marginal physical product (MPP) of the second unit of labor?

(Figure: Long-Run and Short-Run Average Total Cost Curves) In the figure, which level of output represents minimum efficient scale?

Edward uses $10,000 from his savings (earning 5% interest) to open his business. After the first year, Edward incurs a loss of $15,000, which includes the interest that was lost when he withdrew funds from savings. His economic loss is:

The vertical distance between the average total cost curve and the average variable cost curve is _____ cost.

(Figure: Long-Run and Short-Run Average Total Cost Curves) In the figure, at 3,000 units of output, the firm is experiencing:

_____ profit is total revenue minus implicit and explicit costs.

Explain why zero economic profit is not indicative of failure.