ECON 2202-03 S23 Test #3 Study Guide Questions and
Answers.
The firm's fixed costs are $20 per day, what are the firm's average fixed costs at an output
of (5) pizzas? - Answer: $4
To calculate the average fixed cost, you divide the fixed cost ($20) by the output ($5) which
results in $4 as your answer.
What are the firm's average variable costs at an output of (25) pizzas ($195 in total cost of
output, fixed + variable)? - Answer: $7.00
To calculate variable cost, subtract the fixed cost ($20) from the total cost ($195 - $20 =
$175) then divide your variable cost by the output given (25) so:
= $7
What are the firm's average total costs at an output of 10 pizzas ($120 total cost of output
w/ fixed + variable)? - Answer: $12
To calculate average total cost, divide the total cost of output by the output quantity: $120 /
10 = $12
What are the firm's marginal costs at an output of (35) pizzas ($230 total cost of output with
fixed + variable)? - Answer: $4.00
The marginal cost is the change in variable cost divided by the number of additional pizzas
produced. With the additional pizzas produced increasing by (5's) in quantity, the formula
looks like:
$230 $ - 30 = $ = $4.00
A semiprofessional baseball team near your town plays two home games each month at
the local baseball park. They split the concessions 50/50 with the city, but keep revenue
from ticket sales for themselves. The city charges the team $100 each month for the 3-
month season. The team pays the players and manager a total of $1,000 a month. The
team charges $10 for each ticket, and the average customer spends $7 at the concession
stand. Attendance averages 30 people at each home game. In order to break even, how
many tickets does the team need to sell for each game? - Answer: 41 tickers
Revenues must equal costs, and the total costs for the season are $3,300. Per-game costs
are $3,300 ÷ 6 = $550. Revenues include the number of tickets they sell, x, multiplied by
the revenue from each person for tickets and concessions, which is a total of $13.50. So
the number of tickets they must sell to break even is x × $13.50 = $550. Because the team
can't sell 40.7 tickets, they must sell 41 tickets per game to avoid losing money.
, As a waiter you earn $60,000 per year, including tips. Someone offers you a new job as an
economic consultant, which pays $100,000 per year. In order to be a consultant, you'll
need to rent an office and purchase supplies and new computer equipment. We can
conclude which of the following? - Answer: if the explicit cost for the consulting job is
25,000 per year, your economic profit is equal to 15,000.
With explicit costs of $25,000, the accounting profit is equal to $75,000. Because you're
giving up your next best job, being a waiter, the implicit cost of being a consultant is
$60,000. Therefore, your economic profit is equal to $15,000.
If the average total costs are falling, what happens with the marginal cost curve? - Answer:
The marginal cost curve must be below the average total cost curve.
The cookie company in the mall hires workers to produce cookies. The workers are paid
$75 per day, and the cost of renting the space in the mall is $250 per day.
What are the fixed costs of production? - $250 - regardless of the number of cookies made
or workers hired, the bakery still has to pay $250 per day for its space in the mall. The fixed
cost therefore will always be $250.
The cookie company in the mall hires workers to produce cookies. The workers are paid
$75 per day, and the cost of renting the space in the mall is $250 per day.
If two workers are hired, the variable costs are (400 daily output with 2 workers)? - Answer:
$150
The total variable costs of two workers are $75 (what they are paid each day) times (2)
workers = $150.
The cookie company in the mall hires workers to produce cookies. The workers are paid
$75 per day, and the cost of renting the space in the mall is $250 per day.
The total costs when three workers are hired is what? - Answer: $475
The total costs when three workers are hired include the $75 x 3 workers = $225 paid to
workers and $250 to rent the space, for a total of $475 as the total costs.
The following table shows a short-run production function for laptop computers. Use the
data to determine where diminishing product begins.
Diminishing product begins after you hire worker number 0, 1, 2, or 4? - Answer: worker 4,
observe the fall in productivity when worker (4) is hired per the chart of marginal product.
Answers.
The firm's fixed costs are $20 per day, what are the firm's average fixed costs at an output
of (5) pizzas? - Answer: $4
To calculate the average fixed cost, you divide the fixed cost ($20) by the output ($5) which
results in $4 as your answer.
What are the firm's average variable costs at an output of (25) pizzas ($195 in total cost of
output, fixed + variable)? - Answer: $7.00
To calculate variable cost, subtract the fixed cost ($20) from the total cost ($195 - $20 =
$175) then divide your variable cost by the output given (25) so:
= $7
What are the firm's average total costs at an output of 10 pizzas ($120 total cost of output
w/ fixed + variable)? - Answer: $12
To calculate average total cost, divide the total cost of output by the output quantity: $120 /
10 = $12
What are the firm's marginal costs at an output of (35) pizzas ($230 total cost of output with
fixed + variable)? - Answer: $4.00
The marginal cost is the change in variable cost divided by the number of additional pizzas
produced. With the additional pizzas produced increasing by (5's) in quantity, the formula
looks like:
$230 $ - 30 = $ = $4.00
A semiprofessional baseball team near your town plays two home games each month at
the local baseball park. They split the concessions 50/50 with the city, but keep revenue
from ticket sales for themselves. The city charges the team $100 each month for the 3-
month season. The team pays the players and manager a total of $1,000 a month. The
team charges $10 for each ticket, and the average customer spends $7 at the concession
stand. Attendance averages 30 people at each home game. In order to break even, how
many tickets does the team need to sell for each game? - Answer: 41 tickers
Revenues must equal costs, and the total costs for the season are $3,300. Per-game costs
are $3,300 ÷ 6 = $550. Revenues include the number of tickets they sell, x, multiplied by
the revenue from each person for tickets and concessions, which is a total of $13.50. So
the number of tickets they must sell to break even is x × $13.50 = $550. Because the team
can't sell 40.7 tickets, they must sell 41 tickets per game to avoid losing money.
, As a waiter you earn $60,000 per year, including tips. Someone offers you a new job as an
economic consultant, which pays $100,000 per year. In order to be a consultant, you'll
need to rent an office and purchase supplies and new computer equipment. We can
conclude which of the following? - Answer: if the explicit cost for the consulting job is
25,000 per year, your economic profit is equal to 15,000.
With explicit costs of $25,000, the accounting profit is equal to $75,000. Because you're
giving up your next best job, being a waiter, the implicit cost of being a consultant is
$60,000. Therefore, your economic profit is equal to $15,000.
If the average total costs are falling, what happens with the marginal cost curve? - Answer:
The marginal cost curve must be below the average total cost curve.
The cookie company in the mall hires workers to produce cookies. The workers are paid
$75 per day, and the cost of renting the space in the mall is $250 per day.
What are the fixed costs of production? - $250 - regardless of the number of cookies made
or workers hired, the bakery still has to pay $250 per day for its space in the mall. The fixed
cost therefore will always be $250.
The cookie company in the mall hires workers to produce cookies. The workers are paid
$75 per day, and the cost of renting the space in the mall is $250 per day.
If two workers are hired, the variable costs are (400 daily output with 2 workers)? - Answer:
$150
The total variable costs of two workers are $75 (what they are paid each day) times (2)
workers = $150.
The cookie company in the mall hires workers to produce cookies. The workers are paid
$75 per day, and the cost of renting the space in the mall is $250 per day.
The total costs when three workers are hired is what? - Answer: $475
The total costs when three workers are hired include the $75 x 3 workers = $225 paid to
workers and $250 to rent the space, for a total of $475 as the total costs.
The following table shows a short-run production function for laptop computers. Use the
data to determine where diminishing product begins.
Diminishing product begins after you hire worker number 0, 1, 2, or 4? - Answer: worker 4,
observe the fall in productivity when worker (4) is hired per the chart of marginal product.
