Chapter 8 problems.pdf-Econ 120 Dr. Gaul...
Chapter_8_problems.pdf-Econ 120 Dr. Gaulke Chapter 8
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Chapter 8 problems.pdf-Econ 120 Dr....
Chapter_8_problems.pdf-Econ 120 Dr. Gaulke Chapter 8
##### Page 1
Econ 120
Dr. Gaulke
Chapter 8 Practice
1.
A firm’s implicit cost is defined as the [opportunity cost or monetary payment?] while an explicit
cost is defined as the [opportunity cost or monetary payment].
2.
[Economic or accounting?] cost typically exceeds [economic or accounting?] cost, [economic or
accounting?] profit typically exceeds [economic or accounting?] profit.
3.
Suppose a person quits a job earning \$60,000 a year and starts a business with \$175,000
withdrawn from a money-market account earning 15 percent per year.
The implicit cost of the
4.
Edward the entrepreneur takes 2 hours to cut a lawn and he cuts 500 lawns per year.
He uses
solar-powered equipment (truck and mower) that will last forever – and could be sold for
\$20,000 any time.
Edward could earn \$20 per hour as a pedicurist.
The interest rate is 10
percent.
Given his current output level, his marginal cost is \$_______ and his average cost is
\$__________.
Now suppose he decides to cut the number of lawns in half to 250 per year.
What is his new marginal and average cost?
5.
What explains the negatively sloped portion of the short-run marginal cost curve? What explains
the positively sloped portion?
6.
When the marginal cost is less than average cost, an increase in output [increases or
decreases?] average cost.
When marginal cost exceeds average cost, an increase in output
[increases or decreases?] average cost.
7.
Over the positively sloped portion of the short-run average cost curve, the effect of _________
dominates the effect of_________________.
a.
Diminishing marginal returns; decreasing fixed cost
b.
Increasing marginal productivity; decreasing fixed cost
c.
Increasing marginal productivity; falling average fixed cost
d.
Diminishing marginal returns; falling average fixed cost
8.
Consider a firm with a fixed cost of \$60.
Complete the Table.
Output
FC
VC
TC
MC
AFC
AVC
ATC
1
10
2
18
3
30
4
45
5
65

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