Self-Check Questions

1. A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital and

$200,000 on materials. What was the firm’s accounting profit?

2. Continuing from Exercise 7.1, the firm’s factory sits on land owned by the firm that it could rent for

$30,000 per year. What was the firm’s economic profit last year?

3. The WipeOut Ski Company manufactures skis for beginners. Fixed costs are $30. Fill in Table 7.16 for total

cost, average variable cost, average total cost, and marginal cost.

Quantity

Variable

Cost

Fixed

Cost

Total

Cost

Average Variable

Average Total

Marginal

Cost

Cost

Cost

0

1

2

3

4

5

6

0

$10

$25

$45

$70

$100

$135

TABLE 7.16

$30

$30

$30

$30

$30

$30

$30

4. Based on your answers to the WipeOut Ski Company in Exercise 7.3, now imagine a situation where the

firm produces a quantity of 5 units that it sells for a price of $25 each.

a. What will be the company’s profits or losses?
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