Question

1. Until recently Alex worked as an economist, earning $55,000 annually. Then she inherited a piece of commercial real estate that had been renting for $15,000 annually. Alex decided to leave her job and operate a brewpub in the real estate she now owns. At the end of the first year, her records showed total revenues of $340,000 and total payments of $230,000 for employees, utilities, and other supplies. Her economic profit at the end of one year is:

A) $95,000.

B) $40,000.

C) $0.

D) $110,000.

2: Use the following to answer question

Table: Labor and Output

Quantity of labor	Quantity of output
0	0
1	18
2	33
3	45
4	54
5	60

Referring to the accompanying table, the marginal product of the third unit of labor is:

A) 45 units of output.

B) 12 units of output.

C) 9 units of output.

D) 15 units of output.

3. Suppose that for 30 bicycles, the total fixed cost is $2,000 and total variable cost is $4,000. Then the average total cost of 30 bicycles equals

A) $50.

B) $100.

C) $150.

D) $200.

Answer 1

1. In question the explicit or accounting cost will be the total payments made to employees, utilities, and other supplies.

So explicit cost = $230,000

Implicit cost is the salary he left = $55,000 and the rent of self owned real estate = $15,000

Total Implicit cost = 55,000+15,000 = 70,000

Total Revenue = $340,000

Economic Profit = Total Revenue – Economic Cost

Economic Cost = Explicit cost + Implicit cost

Economic Cost = $230,000 + 70,000 = $300,000

Economic Profit = $340,000 – $300,000

Economic Profit = $40,000

2.

Quantity of labor	Quantity of output	Marginal Product
0	0	0
1	18	18
2	33	15
3	45	12
4	54	9
5	60	6

Referring to the accompanying table, the marginal product of the third unit of labor is:

B) 12 units of output. (45 – 33)

It is the difference between the total product of output when one more quantity of labor is used.

3. Total Fixed Cost = $2000, Total Variable cost = $4000

Total Cost = FC + VC

Total Cost = $2000+$4000 = $6000

Average Total Cost for 30 bicycles = 6000/30 = $200

D) $200