Chapter 7 Econ

K = 6.33; L = 7.91.

A firm's production function is Q = 2KL. Its marginal product of capital is 2L, and its marginal product of labor is 2K. The wage rate is $4 per hour, and the rental rate of capital is $5 per hour. If the firm wishes to produce 100 units of output in the long run, how many units of K and L should it employ?

steeper than the long-run marginal cost curve.

A firm's short run marginal cost curve is:

He has committed the sunk cost fallacy.

A restaurant manager named Charles has just spent $15,000 on a new stove. Right after the new stove is installed, a new model is introduced that costs $20,000 but would increase productivity and restaurant profits by $25,000 over the next year. Charles decides not to buy the new model because he does not want to waste the $15,000 he just spent on the new stove, which cannot be resold because all restaurants seek to buy only the latest available model. What kind of mistake has Charles made?

(1/40)Q + 100

Amanda owns a toy manufacturing plant with the production function Q = 200L - 4,000. If the wage rate is $5 per hour, what is her cost function?

decreases as output increases.

Average fixed cost:

usually higher in the short run than in the long run.

Average total cost is:

He should continue to run his coffee shop.

Chad runs a coffee shop that has annual revenues of $300,000, supply costs of $60,000, and employee salaries of $60,000. He has the option of renting out the coffee shop for $80,000 per year, and he has three outside offers from competitors to work as a senior barista at Starbucks (for an annual salary of $30,000), at Simon's coffee house (for an annual salary of $40,000), and at Pete's coffee shop (for an annual salary of $60,000). He can only hold one job at a time. What should Chad do?

average total cost is increasing.

Diseconomies of scale exist when:

10.

If ATC = Q3 - 20Q2 + 220Q and MC = 3Q2 - 40Q + 220, then there are economies of scale until the level of output reaches:

10.

If AVC = Q3 - 20Q2 + 220 Q and MC = 3Q2 - 40Q + 220, then the quantity at which AVC is minimized is:

Marginal cost increases.

If fixed cost increases, which of the following is not true?

there is no fixed cost.

In the simple model of production, which has only two inputs, capital and labor, in the long run:

behaved rationally, because they feel their opportunity cost outweighs the benefit of going to the gym.

People who purchase gym memberships often end up using the gym infrequently, resulting in a higher cost per visit than they could get by buying a 10-visit pass. These people have:

economic cost includes opportunity cost, while accounting cost does not.

The difference between economic cost and accounting cost is that:

always at least as large in the short run as it is in the long run.

The total cost of producing a particular quantity is:

it may have increasing, constant, or decreasing returns to scale.

When a firm is reaping economies of scale:

longer time horizons

Which of the following factors are likely to result in fewer fixed costs?

When marginal cost is above average cost, average cost is increasing.

Which of the following is true about the relationship between marginal cost and average cost?

sunk cost

Which of the following kinds of cost should never be taken into account when making production decisions?

Employees learn by doing.

Which of the following may not be a reason that marginal cost eventually begins to increase as output increases?