Chapter 13 Prep Assignment: The Costs of Production

Xavier opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40.
Xavier has an accounting profit of _____ and an economic profit of ____.

$10 & $50

Diminishing marginal product explains why, as a firm's output increases,

the production function gets flatter, while the total cost curve gets steeper.

A firm is producing 1,000 units at a total cost of $5,000.
If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?

Marginal cost is $8, and average total cost is $5.
Marginal cost is $8, and average variable cost is $5

A firm is producing 20 units with an average total cost of $25 and marginal cost of $15.

If the firm were to increase production to 21 units, which of the following must occur?

Average total cost would decrease.

The government imposes a $1,000 per year license fee on all pizza restaurants.

Which cost curves shift as a result?

Average total cost and average fixed cost.

If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost.

economies, falling