Answers

  1. Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit? Why or why not?
  2. Determine whether each of the following is an explicit or an implicit cost:
  1. Payments for labor purchased in the labor market
  2. A firmís use of a warehouse that it owns and that could be rented to another firm
  3. Rent paid for the use of a warehouse not owned by the firm
  4. The wages that owners could earn if they did not work for themselves
  1. Calculate the accounting profit or lass as well as the economic profit or loss in each of the following situations:
  1. A firm with total revenues of $150 million, explicit cost of $90 million, and implicit costs of $40 million
  2. A firm with total revenues of $125 million, explicit cost of $100 million, and implicit costs of $30 million
  3. A firm with total revenues of $100 million, explicit cost of $90 million, and implicit costs of $20 million
  4. A firm with total revenues of $250,000, explicit cost of $275,000, and implicit costs of $50,000
  1. What effect would each of the following have on a firmís short-run marginal cost curve and its total fixed cost curve?
  1. An increase in the wage rate
  2. A decrease in property taxes
  3. A rise in the purchase price of new capital
  4. A rise in energy prices
  1. Complete the following table. At what point do diminishing marginal returns set in?
  2. Units of the Variable Resource

    Total Product

    Marginal Product

    0

    0

     

    1

    10

     

    2

    22

     

    3

     

    9

    4

     

    4

    5

    34

     

     

  3. Complete the following table, assuming that each unit of labor costs $75 per day.
  4. Quantity of Labor per Day

    Output per Day

    Fixed Cost

    Variable Cost

    Total Cost

    Marginal Cost

    0

     

    $300

    $

    $

    $

    1

    5

     

    75

     

    15

    2

    11

     

    150

    450

    12.5

    3

    15

     

     

    525

     

    4

    18

     

    300

    600

    25

    5

    20

     

     

     

    37.5

  5. Complete the following table, where L is units of labor, Q is units of output and MP is the marginal product of labor.
  6. L

    Q

    MP

    VC

    TC

    MC

    ATC

    0

    0

     

    $ 0

    $ 12

     

     

    1

    6

     

    $ 3

    $ 15

     

     

    2

    15

     

    $ 6

     

     

     

    3

    21

     

    $ 9

     

     

     

    4

    24

     

    $ 12

     

     

     

    5

    26

     

    $15

     

     

     

     

  7. Assume that labor and capital are the only inputs used by a firm. Capital is fixed at 5 units, which cost $100 each. Workers can be hired for $200 each. Complete the following table to show average variable cost (AVC), average total cost (ATC), and marginal cost (MC).

Quantity of Labor

Total Output

AVC

ATC

MC

0

0

 

 

 

1

100

 

 

 

2

250

 

 

 

3

350

 

 

 

4

400

 

 

 

5

425