Homework #10 Answers
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:
The true cost of taking some action is its _________.
_________ is falling when marginal cost is below it, and rising when marginal
cost is above it.
Average Total Cost
A cost that does not depend on quantity of output is a _________.
In the ice-cream industry in the short run, _________ includes the cost of cream
and sugar, whereas _________ includes the cost of the factory.
Profits equal total revenue minus _________.
Total Cost (for Econ Profit)
The cost of producing an extra unit of output is _________.
The cost of an owner-supplied resource is _________.
If accounting profit is $45,000 and economic profit is $20,000, what is the
$25,000 difference between the two called?
What items might be included in the difference between accounting and economic
Cost of owner-supplied resources, e.g. owner’s labor, owners financial
How does the long run differ from the short run in terms of inputs?
In terms of
LR: all inputs variable, so all costs are variable.
SR: at least one input fixed,
so sunk costs exist.
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
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.
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-
What are Hattie’s explicit costs of running the hardware store for a year?