Peter Owns a Sawmill and Produces Timber for Construction

question 47

Multiple Choice

Peter owns a sawmill and produces timber for construction.He sells the timber for $250 per cubic metre.His production costs are $90 per cubic metre.His producer surplus is:

• A)$250 per cubic metre
• B)$90 per cubic metre
• C)$160 per cubic metre
• D)none of the above

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Definitions:

Average Cost

The total cost of production divided by the total quantity produced, representing the cost per unit of output.

Diminishing Marginal Productivity

A principle in economics that indicates that as one inputs more of a factor of production while holding other factors constant, the additions to output will eventually decrease.

Output

The quantity of goods or services produced in a given period by a firm, industry, or country.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, typically characterized by a reduction in per-unit cost with increasing output.