1. The computation of economic cost is based on the principle of __________.
2. A firms implicit cost is defined as the cost of non purchased inputs, such as the entrepreneur’s _________and _________.
3. Economic profit equals _________minus_________.
4. Fill with economic or accounting: Because _________cost typically exceeds _________cost, _________profit typically exceeds_________ profit.
5. Suppose a person quits a job paying $40,000 per year and starts a business with $100,000 withdrawn from a money-market account earning 8 percent per year. The implicit cost of the business is _________for the entrepreneur s time plus_________ for the entrepreneur s funds.
6. The _________ (long/short) run is defined as a period over which a firm cannot change its production facility.
7. When a firm is perfectly flexible in its choice of all inputs, the firm is operating in the _________ (long/short) run.
8. Compute the Cost. Edward the entrepreneur takes two hours to cut a lawn, and he cuts 1,000 lawns per year. He uses solar-powered equipment (truck and mower) that will last forever and can be sold at any time for $20,000. Edward could earn $12 per hour as a pedicurist. The interest rate is 10 percent.
a. Given his current output level, compute his marginal cost and average cost of cutting lawns.
b. Suppose he decides to reduce the number of lawns cut by half, to 500 per year. Compute the new marginal cost and average cost.