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Ch. 10 - The Costs of ProductionWorksheetSee all chapters

# Revenue, Cost, and Profit

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Sections
Revenue, Cost, and Profit
The Production Function and Diminishing Returns
Marginal Cost
The Relationship Between Average Cost and Marginal Cost
Graphing Costs
Average Total Cost: Short Run and Long Run
Isoquant Lines
Isocost Lines
Cost-Minimizing Combination of Labor and Capital
###### Step 1: Go to college. Step 2: Pass microeconomics. Step 3: ??? Step 4: PROFIT

Concept #1: Revenue

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Concept #2: Explicit and Implicit Cost

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Concept #3: Accounting Profit and Economic Profit

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Practice: Fast Fingers Freddy gives banjo lessons for $50 per hour. One day, he spends 8 hours planting$100 worth of seeds on his farm. If the seeds yield $600 worth of crops, what is his accounting profit and economic profit? Practice: Ricky Smooth opens up a hunch punch stand in his dorm room every Wednesday for two hours. He spends$40 on ingredients and sells $120 worth of hunch punch. In those same two hours, Ricky could have been a nude model for the art department earning$60. Ricky Smooth has an accounting profit of ________ and an economic profit of ________.

Practice: Sweetie Nick has dreamt of owning a candy store his whole life. Unfortunately, after a few wrong turns, Sweetie Nick finds himself stuck in a job he hates, earning a nice salary of $100,000, but he is completely dead inside. One day, Sweetie Nick is fed up and decides to quit his job and open a candy store. He takes his$300,000 savings, which were earning 5% interest, and buys a property downtown. In his first year, Sweetie Nick sells $220,000 worth of candy that he purchased for$80,000. He also paid utilities of $2,000 and hired a cashier that earned$16,000 throughout the year. What is Sweetie Nick’s accounting profit and economic profit?

Concept #4: Fixed Costs and Variable Costs; Short Run and Long Run

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Practice: A short run cost function assumes that:

Practice: A company currently has total costs of $4,096 when producing 128 units. If total fixed costs equal$1,024, what is average variable cost?

Practice: Rose incurs $7,200 per month in fixed costs operating her floral shop. She pays her employees$9 per hour and had three assistants working 120 hours this month. Her other variable costs were \$800 this month. What are Rose’s total variable costs and total costs this month?

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