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.
7a
•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?
1.
2.
3.
4.
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?
1.
2.
3.
4.
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. 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?
1.
2.
3.
4.
$0
$ 35
-$ 5
$ 40
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?
1.
2.
3.
4.
$0
$ 35
-$ 5
$ 40
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?
1.
2.
3.
4.
$0
$ 35
-$5
$ 40
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?
1.
2.
3.
4.
$0
$ 35
-$5
$ 40
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.
1.
2.
3.
A
B
C
4.
1.
2.
3.
A
B
C
5. The production function
(TP curve) shows how:
1.
2.
3.
4.
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:
1.
2.
3.
4.
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?
1.
2.
3.
4.
69
27
5
3
6. What is the MP of
th
the 4 worker?
1.
2.
3.
4.
69
27
5
3
7. The slope of the TP
curve equals zero with the
_____ worker.
1.
2.
3.
4.
5.
6.
1st
2nd
3rd
4th
5th
6th
7. The slope of the TP
curve equals zero with
the _____ worker.
1.
2.
3.
4.
5.
6.
1st
2nd
3rd
4th
5th
6th
8. Diminishing marginal
returns begin with the
_____ worker.
1.
2.
3.
4.
5.
6.
1st
2nd
3rd
4th
5th
6th
8. Diminishing marginal
returns begin with the
_____ worker.
1.
2.
3.
4.
5.
6.
1st
2nd
3rd
4th
5th
6th
9. The intersection of AP
and MP occurs at the AP
curve’s:
1.
2.
3.
4.
minimum
maximum
slope
Trick question, they do not intersect
9. The intersection of AP
and MP occurs at the AP
curve’s:
1.
2.
3.
4.
minimum
maximum
slope
Trick question, they do not intersect
10. When the TP curve is
increasing at a decreasing
rate, then MP is
1.
2.
3.
4.
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
1.
2.
3.
4.
Increasing and positive
Increasing and negative
Decreasing and positive
Decreasing and negative
11. Section A of
the TP curve is
explained by:
1. Teamwork and
specialization
2. Problem of congestion
3. Overcrowded
4. Diminishing marginal
returns
11. Section A of
the TP curve is
explained by:
1. Teamwork and
specialization
2. Problem of congestion
3. Overcrowded
4. Diminishing marginal
returns