...1. Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit? Why or why not? 2. Determine whether each of the following is an explicit cost or an implicit cost: a) Payments for labor purchased in the labor market b) A firm’suse of a warehouse that it owns and could rent to another firm c) The wages that owners could earn if they did not work for themselves 3. What are economies of scale? Please give an example. What are diseconomies of scale? Please give an example. 4. Your rich relative died and left you $100,000, which you decided to use for your own Internet business. What will be your fixed and variable costs? Briefly discuss. 5. Explain the shape of the long-run average cost curve. How firms use the long-run cost curve to make choices about production? 6. What is the relationship between marginal cost and average cost? Briefly explain. 7. What distinguishes a firm's short run period from its long run priod? Briefly explain. 8. As a farmer, you must decide how many times during the year to plant a new crop. Also, you must decide how far apart to space the plants. Will diminishing returns to be a factor in your decision making? Briefly discuss. 9. How does having a menu that is uniform around the country provide McDonald's with economies of scale? Briefly discuss. 10. Please read an article...
Words: 630 - Pages: 3
...1. Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit? Why or why not? -By raising corn instead of soybeans Amos is missing out on an economic profit of $100. Therefore Amos should start growing Soybeans to maximize his profit. 2. Determine whether each of the following is an explicit cost or an implicit cost: a) Payments for labor purchased in the labor market EXPLICIT COST b) A firm’suse of a warehouse that it owns and could rent to another firm IMPLICIT COST c) The wages that owners could earn if they did not work for themselves IMPLICIT COST 3. What are economies of scale? Please give an example. What are diseconomies of scale? Please give an example. Economies of Scale: The forces which cause the firms average cost to decrease, as the level of operations increased in the long run period 4. Your rich relative died and left you $100,000, which you decided to use for your own Internet business. What will be your fixed and variable costs? Briefly discuss. Fixed cost: Costs that are independent of output and are incurred even if no output is produced; the cost when output is equal to zero. Variable cost: Cost of variable resources. 5. Explain the shape of the long-run average cost curve. How firms use the long-run cost curve to make choices about production? The shape of the long-run...
Words: 1874 - Pages: 8
...AND exercises Answers to Questions for Review 1. (Explicit and Implicit Costs) Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit? Why or why not? Amos McCoy is not currently making an economic profit, despite the fact that he is making an accounting profit. This is so, because the accounting profit calculation does not take into account an important implicit cost—the opportunity cost of not raising soybeans. Actually, McCoy is experiencing an economic loss. According to our theory, he should get out of the corn business and begin growing soybeans. This question highlights the important distinction between accounting profit and economic profit. 2. (Explicit and Implicit Costs) Determine whether each of the following is an explicit cost or an implicit cost: a) Payments for labor purchased in the labor market b) A firm’s use of a warehouse that it owns and could rent to another firm c) Rent paid for the use of a warehouse not owned by the firm d) The wages that owners could earn if they did not work for themselves a) explicit; b) implicit; c) explicit; d) implicit 3. (Alternative Measures of Profit) Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations: a. A firm with total revenues...
Words: 3245 - Pages: 13
