7a – Economic Profit and the Production Function This web quiz may appear as two pages on tablets and laptops. I recommend that you view it as one page by clicking on the open book icon at the bottom of the page.

Accounting and Economic Profits Production Function

7a – Acct. & Econ Profits Must Know / Outcomes: Define and understand the terms and concepts listed at the end of the chapter. Distinguish between explicit and implicit costs, and between normal and economic profits Explain why normal profit is an economic cost, but economic profit is not Why is a zero economic profit OK?

7a – Production Function Must Know / Outcomes: Distinguish between explicit and implicit costs, and between accounting and economic profits Explain why a normal profit is an economic cost, but an economic profit is not Why is a zero economic profit OK for businesses? What are sunk (fixed) costs and why are they ignored? Explain the law of diminishing (marginal) returns Differentiate between the short run and the long run. Compute and graph marginal product and average product when given total product data Explain the relationship between total product, marginal product, and average product Explain the shape of the total product, marginal product, and average product graphs (specialization and teamwork, congestion, and overcrowded) Differentiate between production, productivity, and productive efficiency Explain what is meant by: the MP curve is the slope of the TP curve (Note: All marginal curves are the slopes of their total curves.) Assume your GPA is 3.0. What happens to your GPA if your you get straight C's this semester? Straight A's this semester? What happens to the AP curve if the MP is above it? Below it?

1. Which of the following is an implicit cost for Tom’s business? Tom buys $100 of material Tom pays the electricity bill Tom pays his business taxes Tom forgoes a job at another business to work for himself

1. Which of the following is an implicit cost for Tom’s business? Tom buys $100 of material Tom pays the electricity bill Tom pays his business taxes Tom forgoes a job at another business to work for himself

2. Pam runs her own plumbing business 2. Pam runs her own plumbing business. Last year she earned $100 in total revenue and paid $65 to her suppliers and employees. Last year she was offered $40 to work for another plumber. What is Pam’s accounting profit? $ 0 $ 35 -$ 5 $ 40

2. Pam runs her own plumbing business 2. Pam runs her own plumbing business. Last year she earned $100 in total revenue and paid $65 to her suppliers and employees. Last year she was offered $40 to work for another plumber. What is Pam’s accounting profit? $ 0 $ 35 -$ 5 $ 40

3. Pam runs her own plumbing business 3. Pam runs her own plumbing business. Last year she earned $100 in total revenue and paid $65 to her suppliers and employees. Last year she was offered $40 to work for another plumber. What is Pam’s economic profit? $ 0 $ 35 - $ 5 $ 40

3. Pam runs her own plumbing business 3. Pam runs her own plumbing business. Last year she earned $100 in total revenue and paid $65 to her suppliers and employees. Last year she was offered $40 to work for another plumber. What is Pam’s economic profit? $ 0 $ 35 - $ 5 $ 40

Pam runs her own plumbing business Pam runs her own plumbing business. Last year she earned $100 in total revenue and paid $65 to her suppliers and employees. Last year she was offered $40 to work for another plumber. Accounting profit = $35 Economic profit = - $ 5 What should Pam do, stay in business or work for the other plumber?

4. A B C

4. A B C

5. The production function (TP curve) shows how: costs change with output costs change with the number of inputs output changes with the number of inputs profits change with output

5. The production function (TP curve) shows how: costs change with output costs change with the number of inputs output changes with the number of inputs profits change with output

6. What is the MP of the 4th worker? 69 27 5 3

6. What is the MP of the 4th worker? 69 27 5 3

7. The slope of the TP curve equals zero with the _____ worker. 1st 2nd 3rd 4th 5th 6th

7. The slope of the TP curve equals zero with the _____ worker. 1st 2nd 3rd 4th 5th 6th

8. Diminishing marginal returns begin with the _____ worker. 1st 2nd 3rd 4th 5th 6th

8. Diminishing marginal returns begin with the _____ worker. 1st 2nd 3rd 4th 5th 6th

9. The intersection of AP and MP occurs at the AP curve’s: minimum maximum slope Trick question, they do not intersect

9. The intersection of AP and MP occurs at the AP curve’s: minimum maximum slope Trick question, they do not intersect

10. When the TP curve is increasing at a decreasing rate, then MP is Increasing and positive Increasing and negative Decreasing and positive Decreasing and negative

10. When the TP curve is increasing at a decreasing rate, then MP is Increasing and positive Increasing and negative Decreasing and positive Decreasing and negative

11. Section A of the TP curve is explained by: Teamwork and specialization Problem of congestion Overcrowded Diminishing marginal returns

11. Section A of the TP curve is explained by: Teamwork and specialization Problem of congestion Overcrowded Diminishing marginal returns