ans10 - Homework #10 Answers E201 Spring 2009 1. There are...

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Homework #10 Answers E201 Spring 2009 1. There are many different types of costs discussed in Chapter 13: in alphabetical order, they are average total cost, explicit cost, fixed cost, implicit cost, marginal cost, opportunity cost, total cost, and variable cost. Fill in the type of cost that best completes the statements below: a. The true cost of taking some action is its _________. Opportunity cost b. _________ is falling when marginal cost is below it, and rising when marginal cost is above it. Average Total Cost c. A cost that does not depend on quantity of output is a _________. Fixed Cost d. In the ice-cream industry in the short run, _________ includes the cost of cream and sugar, whereas _________ includes the cost of the factory. Variable Cost; Fixed Cost e. Profits equal total revenue minus _________. Total Cost (for Econ Profit) f. The cost of producing an extra unit of output is _________. Marginal Cost g. The cost of an owner-supplied resource is _________. Implicit Cost 2. a. If accounting profit is $45,000 and economic profit is $20,000, what is the $25,000 difference between the two called? Implicit costs. b. What items might be included in the difference between accounting and economic profit. Cost of owner-supplied resources, e.g. owner’s labor, owners financial capital, etc. 3. a. How does the long run differ from the short run in terms of inputs? In terms of c o s t s ? LR: all inputs variable, so all costs are variable. SR: at least one input fixed, so sunk costs exist. b. State an example of a short-run decision and an example of a long run decision for a firm. For IU: close dorm in summer (SR decision), build a new dorm (LR decision). 4. Hazel’s daughter Hattie is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the store and stock it with inventory. In addition, Hattie would have to quit her $50,000 per year job as a hatter. Hattie doesn’t hate being a hatter; she just wonders if she might not be happier as a profitable purveyor of high- quality hardware. Help her. a. What are Hattie’s explicit costs of running the hardware store for a year? $500,000.
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b. What are her implicit costs, if any, of running the store for a year? $50,000.
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ans10 - Homework #10 Answers E201 Spring 2009 1. There are...

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