An example of an opportunity cost that is also an implicit cost is

the value of the business owner’s time.

Arnold 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 Arnolds’s annual opportunity cost of the financial capital that he invested in his business?

$40

Economists assume that the goal of the firm is to maximize total

profits

Jessica has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Jessica will cover her start-up expenses by cashing in a $20,000 certificate of deposit (CD) on which she was earning annual interest of $500.

Refer to Scenario 1. Jessica's annual implicit costs (opportunity costs) will equal

$80,500.

The difference between accounting profit and economic profit relates to

the manner in which costs are defined.

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business’s costs.

Tyler says his costs are $25,900, and Greg says his costs are $66,500.

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,

average variable cost is $3.

Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is

$500.

Which of the following is the best example of a variable cost?

monthly wage payments for hired labor

Which of the following statements about costs is correct?

As the quantity of output increases, marginal cost eventually rises.

Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is divided evenly over all the units produced?"

average total cost

When a factory is operating in the short run,

it cannot adjust the quantity of fixed inputs.

When a firm is experiencing diseconomies of scale, long-run

average total cost is less than long-run marginal cost.

When comparing short-run average total cost with long-run average total cost at a given level of output,

short-run average total cost is typically above long-run average total cost.

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

economies of scale.

In the short run, a firm that produces and sells house paint can adjust

how many workers to hire.

David’s firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David’s firm

gets steeper as output increases.

When a firm's only variable input is labor, then the slope of the production function measures the

marginal product of labor.

Which of the following statements about a production function is correct for a firm that uses labor to produce output?

a.

The production function depicts the relationship between the quantity of labor and the quantity of output.

b.

The slope of the production function measures marginal product.

c.

The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing.

All of the above is correct

Competitive markets are characterized by

free entry and exit by firms.

Why does a firm in a competitive industry charge the market price?

If a firm charges less than the market price, it loses potential revenue.