Question

1)Suppose you own a cupcake bakery. Your revenue is $400/day and your operating costs are $100/day. If you could make $300/day bartending for someone else, then economic profits of your cupcake bakery are $__________ and your accounting profits are $__________ .

a

$0; $0

b

$0; $300

c

$100; $0

d

$100; $100

2) A bakery can produce 150 donuts per hour when they hire 10 workers and 165 donuts per hour when they hire 11 workers. Based on this information the 11th worker's marginal product is

a

10 donuts

b

11 donuts

c

15 donuts

d

165 donuts

3)If the average variable cost of producing 4 jeans at Jerry’s factory is $60, and the fixed cost of the factory per hour is $200, what is the total cost when 4 jeans are produced?

a

$60

b

$240

c

$260

d

$440

Answer 1

Answer : 1) The answer is option b.

Here

Revenue = $400

Explicit cost = Operating cost = $100

Implicit cost = Opportunity cost = $300

Economic profit = Revenue - Explicit cost - Implicit cost = 400 - 100 - 300 = $0.

Accounting profit = Revenue - Explicit cost = 400 - 100 = $300.

Hence except option b other options are not correct. Therefore, option b is the correct answer.

2) The answer is option c.

Marginal product of 11th worker = Total product of 11 workers - Total product of 10 workers = 165 - 150 = 15 donuts.

Hence except option c other options are not correct. Therefore, option c is the correct answer.

3) The answer is option d.

Total variable cost of 4 jeans = Average variable cost * Quantity = 60 * 4 = $240

Total fixed cost = $200

Total cost for producing 4 jeans = Total variable cost + Total fixed cost = 240 + 200 = $440.

Hence except option d other options are not correct. Therefore, option d is the correct answer.