Quiz 6 – Production Theory
Professor Matthew Festa
Due in Class: Tuesday Nov 7th
1) (2points) Jim quits his job as a construction worker to open his own construction business. Jim’s revenues are $150,000 while the costs of operating are $100,000 (included in this number is $10,000 in order to purchase equipment, an office and other expenses in order to open the business). The salary at his old job was $40,000 a year. In order to obtain the $10,000 to open his business he took out his savings of $10000, which earned him $1,000 a year in income.
a. What is his accounting profit?
b. What is his economic profit?
2) Based on the following 2 graphs, tell me where productivity per worker is increasing at an accerating rate, where it is increasing at a diminishing rate and where it starts declining. Why does total production begin to decline after point a? (use the textbook as a reference). (2 points).
3) Calculate the ATC and the Marginal Total Cost for the following. (4 points).
Q TVC TFC
0) 0 100
1) 10 100
2 )15 100
3) 18 100
4) 23 100
5) 33 100
6) 45 100
4) How much can be produced while costs are decreasing (2 points).