Microeconomics Test 4

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School

Memorial High School *

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MICRO

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Economics

Date

May 26, 2024

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pdf

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Uploaded by BaronFlamingo4372

AP Microeconomics Page 1 of 5 Test: Firm Production, Costs, and Revenue User Name: Instructor: Date: (print clearly) Directions * Neatly write your responses in the spaces provided. Use a blue or black pen. Don’t write in the margins. * Remember to complete the submission information on every page you turn in. 1. Marcy works out of her home as a freelance writer. Publishing companies pay her to write passages for economics textbooks. A. How would Marcy calculate her accounting profit to determine her taxable income? (3 points) A. To calculate her accounting profit for determining taxable income, Marcy would need to subtract her explicit costs (expenses like office supplies, equipment, utilities, etc.) from her total revenue earned from writing jobs. This calculation gives her accounting profit, which is the amount subject to income tax. B. Explain how Marcy's economic profit would differ from her accounting profit. (3 points) B. Economic profit differs from accounting profit in that it considers both explicit costs and implicit costs (opportunities foregone). Implicit costs include things like the market rental value of her home office space if she rented it out, and the income she could have earned from an alternative job. Economic profit deducts both explicit and implicit costs from total revenue. As implicit costs are typically higher than explicit costs alone, economic profit is usually lower than accounting profit. Copyright © 2021 Apex Learning. See Terms of Use for further information.

AP Microeconomics Page 2 of 5 Test: Firm Production, Costs, and Revenue User Name: Instructor: Date: (print clearly) C. If Marcy determines that she is making zero economic profit, do you think she should find a new line of work? Explain why or why not. (4 points) C. If Marcy determines she is making zero economic profit, it means her total revenue from writing equals the sum of her explicit and implicit costs. In this situation, she is not earning any return above what she could have earned by putting her resources (time, office space, equipment, etc.) to their next best use. However, leaving her current line of work is a personal decision based on factors beyond just profitability. She may derive non-monetary benefits like flexibility, autonomy, or creative satisfaction that make continuing as a freelance writer worthwhile despite zero economic profit. The decision depends on her goals, alternative opportunities, and how she values the non-financial aspects of her work. 2. The table below shows the daily production information for workers at a company that makes pre-packaged sandwiches for sale in vending machines. WorkersSandwiches 1 10 22 34 48 55 60 63 65 ® [N | |s|w|n A. What can the owner of this business change in the short run? (2 points) In the short run, the owner of the sandwich-making business can only change the number of workers (variable input), as the factory size, machinery, and other fixed inputs are already in place. Copyright © 2021 Apex Learning. See Terms of Use for further information.

AP Microeconomics Page 3 of 5 Test: Firm Production, Costs, and Revenue User Name: Instructor: Date: (print clearly) B. What can the owner change in the long run? (2 points) In the long run, the owner can change all factors of production, including the factory size, machinery, and other capital equipment, in addition to the number of workers. C. What is the marginal product for adding a second worker? A third? A fourth? (3 points) The marginal product for adding: A second worker is 12 sandwiches (22 - 10) A third worker is 12 sandwiches (34 - 22) A fourth worker is 14 sandwiches (48 - 34) D. What is the pattern in the marginal product for each new worker, and why does this occur? (3 points) The pattern in the marginal product shows diminishing marginal returns. As more workers are added, the additional output (marginal product) initially increases from 12 to 14 sandwiches but eventually starts decreasing. This occurs because with a fixed amount of capital and factory space, each additional worker has less capital to work with, leading to a decline in their productivity after a certain point. The limited availability of complementary inputs like machinery causes the diminishing marginal returns Copyright © 2021 Apex Learning. See Terms of Use for further information.

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AP Microeconomics Page 4 of 5 Test: Firm Production, Costs, and Revenue User Name: Instructor: Date: (print clearly) 3. Production and Cost Curves A. The graph below shows total product curve, average product curve, and marginal product curve for a firm. What observations can be made about the relationships among these curves? (10 points) Output AP MP Input Some observations about the relationships between the total product (TP), marginal product (MP), and average product (AP) curves are: All three curves initially slope upwards, but reach a peak and then slope downwards. When MP is increasing, TP is also increasing at an increasing rate. When MP is decreasing but still positive, TP is increasing at a decreasing rate. When MP equals zero, TP reaches its maximum point. When MP is negative, TP starts decreasing. Additionally, AP initially increases along with MP and TP, reaches its peak before the others, and then decreases as diminishing returns set in. Lastly, the average product curve is at its maximum when it intersects the marginal product curve Copyright © 2021 Apex Learning. See Terms of Use for further information.

AP Microeconomics Page 5 of 5 Test: Firm Production, Costs, and Revenue User Name: Instructor: Date: (print clearly) B. Draw a graph with the ATC, AVC, MC, and AFC for the firm from part A. (8 points) What observations can be made about the shapes of these curves and the relationships among them? (7 points) Some observations that can be made about these graphs are that the distance between the ATC curve and the AVC curve equals the AFC curve. Another thing is that the MC curve initially begins to slope downward, reflecting marginal returns; however, at a certain point, it begins to slope upward reflecting diminishing marginal returns. Another observation is that the MC curve intersects the AVC and ATC curves at their lowest points. Moreover, the ATC curve declines as long as the MC curve is below it and when the MC curve is above it the ATC rises. Lastly, the AVC curve declines when the MC curve is below it and rises when the MC curve is above it. fon A ATC Ve Copyright © 2021 Apex Learning. See Terms of Use for further information.

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