# Problems & Applications (Ch 13).docx - Problems &...

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Problems & Applications (Ch 13)1. Problems and Applications Q1This chapter discusses many types of costs: opportunity cost, explicit costs, fixed cost, variable cost,average fixed cost, and average variable cost.Fill in the type of cost that best completes eachsentence.In a pizza industry, the cost of the factory isa fixed costonly in the short run but not in the longrun.Points:1 / 1
Points:1 / 1A cost that depends on the quantity produced is.
Points:1 / 1The termopportunity costrefers to all the things you must give up to taking some action.Points:1 / 1The termexplicit costsrefers to costs that involve direct monetary payment by the firm.Points:1 / 1Average variable costis falling when marginal cost is below it and rising when marginal costis above it.Points:1 / 1Close Explanation
Fixed costsare costs that do not vary with the quantity of output produced. In the short run, a firmcannot alter the size of its operation, so the cost of the factory is a fixed cost. In the long run, however,the firm can choose its size of operation, so the cost of the factory becomes one of the variable costs.Average fixed costis fixed cost divided by the quantity of output. As quantity of output increases,average fixed cost falls.Variable costsare costs that change as the firm alters the quantity of output produced.Theopportunity costof an action is the value of all those things that must be forgone to take thataction.Explicit costsare the input costs that require an outlay of money by the firm.Average variable costis variable cost divided by the quantity of output. Whenever marginal cost isless than average variable cost, average variable cost is falling. Whenever marginal cost is greaterthan average variable cost, average variable cost is rising.See Sections: Total Revenue, Total Cost, and Profit; Costs as Opportunity Costs: Fixed and VariableCosts; Average and Marginal Cost; and Cost Curves and Their Shapes.2. Problems and Applications Q2Your aunt is thinking about opening a hardware store. She estimates that it would cost \$600,000 peryear to rent the location and buy the stock. In addition, she would have to quit her \$55,000 per yearjob as an accountant.What is the opportunity cost of something?Points:
1 / 1Close ExplanationExplanation:
.Points:1 / 1Close ExplanationExplanation:The opportunity cost of running the hardware store is \$655,000, consisting of \$600,000 to rent thestore and buy the stock and a \$55,000 implicit cost, because your aunt would quit her job as anaccountant to run the store. See Section: Costs as Opportunity Costs.

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