ECON 528 HOMEWORK 2

ECON 528 HOMEWORK 2


Question 1
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Golda Rush quit her job as a manager for Home Depot to start her own hair dressing
salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of
$30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close
friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent
$18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another
$15,000 on equipment and hairdressing material. Based on this information, what is the
amount of her implicit costs?



Select one: a.
$80,000
b. $42,000
c. $70,000
d. $41,500


Question 2
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Accounting costs exclude implicit costs.
Select one:
a.
True

b. False
Question 3
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Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio."
Membership at his fitness center is very low and at this rate, Adam needs an
additional
$12,000 per year to keep his studio open. Which of the following is true?



Select one:
a. The $10,000 Adam spent on equipment is the total cost of starting the business and the
$12,000 he'll need to continue operations is a marginal cost.
b. The fixed cost of running the studio is $22 000.




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,ECON 528 HOMEWORK 2


d. The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll
need to continue operations is a variable cost.


Question 4
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Table 11-7
Quantity of Fixed Cost Variable Cost Total Cost Average Total Cost
Lanterns (dollars) (dollars) (dollars) (dollars)
75 200 170 370 4.93
80 200 230 430 5.36
90 200 7.67
100 200 810
115 200 11.8
117 200 1264 1464 12.5
120 200 1480


Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
Refer to Table 11-7. What is the variable cost of production when the firm produces 115
lanterns?



Select
a. $o
1n,1e5:7

b. $1,556
c. $956
d. $10.05
Question 5
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Table 11-7
Quantity of Fixed Cost Variable Cost Total Cost Average Total
Lanterns (dollars) (dollars) (dollars) Cost (dollars)
75 200 170 370 4.93




2

, ECON 528 HOMEWORK 2


80 200 230 430 5.36
90 200 7.67
100 200 810
115 200 11.8
117 200 1264 1464 12.5
120 200 1480


Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
Refer to Table 11-7. What is the average total cost of production when the firm produces 120
lanterns?



Select one: a.
$1,680
b.
$14

c. $12.3
d. $72
Question 6
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Table 11-7

Quantity of Fixed Cost Variable Cost Total Cost Average Total Cost
Lanterns (dollars) (dollars) (dollars) (dollars)
75 200 170 370 4.93
80 200 230 430 5.36
90 200 7.67
100 200 810
115 200 11.8
117 200 1264 1464 12.5
120 200 1480


Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.


Refer to Table 11-7. What is the average variable cost per unit of production when the
firm produces 90 lanterns?




3