1. 7a – Economic Profit and the Production Function
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2. Accounting and Economic Profits Production Function

3. 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?

4. 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?

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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?

12. 4. A B C

13. 4. A B C

15. 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

16. 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

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

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

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

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

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

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

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

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

28. 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

29. 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

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

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