CH 7:

The fixed cost of producing wedding cakes is $10,000 per month. The variable cost for producing 10 wedding cakes per month is $12,000. The average cost of producing 10 wedding cakes per month is ____.

$2,200

Marcus has four employees. The four employees produce 60 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 65 floral arrangements in a day. The fifth employee's marginal product is __________.

5 floral arrangements in a day

production function

Output as a function of the amount of each input; relationship between the quantities of inputs and the total quantity of output produced in a given time period

Diminishing marginal returns does what to marginal cost?

increases marginal cost

If marginal product is decreasing, what is happening to marginal cost?

it is increasing

At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to _____.

$16,000

If labor is the only variable input a firm owner uses and the wage rate is $200 per week, what is the firm owner's variable cost per week if she hires 12 workers?

$2,400

Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week she would have to spend $6,100 per week. The marginal cost per hat is ______.

$20

If at 500 units of output, total fixed cost is equal to $10,000 and total variable cost is equal to $15,000. Total cost is equal to _____.

$25,000

Consider this example: The total cost of producing 1,000 units of output is equal to $55,000 per week. The total cost of producing 1,010 units is equal to $55,500 per week. The marginal cost of increasing output from 1,000 units per week to 1,010 units per week is:

$50

What are two of the reasons that average cost tends to have a "bowl" shape?

Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output

law of diminishing marginal returns

The marginal product of an input will eventually decrease as more of that input is used (more workers = less product according to this)

Marginal cost is equal to the slope of the __________.

Total cost curve

fixed input

When a producer cannot change the amount of a particular input for a length of time

If marginal cost is equal to average cost, then the AVC at this point must be __________.

at its minimum point

If average product is increasing as the variable input increases, which of the following is true?

average cost must be decreasing

What happens to a short-run production function as more workers are added?

becomes less steep (plateaus), and output decreases as # workers increase

marginal product of labor

change in output divided by change in labor

Marginal cost

change in total cost resulting from an increase in production of one unit of output (change in total cost/quantity)

Diminishing marginal returns means that marginal product will eventually ______ and marginal cost will eventually _______.

decrease, increase

Average cost normally ________ as output increases, but eventually begins to _________.

decreases, increase

If the quantity of an input is variable in the short run, its total cost will ______________ as output increases.

increase

If workers become more productive as more are hired, explain what happens to the value of labor to a producer?

labor becomes more valuable -- marginal cost goes down as output increases

When marginal product is increasing, what happens to marginal cost?

marginal cost is decreasing

If marginal product is increasing, what else is happening?

marginal cost is falling

Long run

period of time long enough for all inputs to be changed

If the quantity of an input is fixed in the short run, its total cost will ______________ as output increases.

stay the same

A change in fixed costs only affects which costs?

total and average costs

Average cost

total cost(fixed and variable) divided by total output

Average cost

total cost/quantity

In what direction does a short-run production function curve go?

upward sloping (like a hill)

In the long run, all costs are _______.

variable

Marginal cost is affected only by _________ costs.

variable

Total Cost

variable + fixed costs

When is average cost at a minimum?

when marginal cost and average cost are equal

When does average cost increase?

when marginal cost is greater than average cost

When does average cost decrease?

when marginal cost is less than average cost

Short run

when there isn't enough time to change the amount of all inputs (some inputs are fixed)