Chapter 7 Production and Cost in the Firm

If variable cost rises from $60 to $100 as output increases from 15 to 20 units, the marginal cost of the twentieth unit is _____.

$8

Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The economic profit earned by Ernie was _____.

$9,500

Suppose Ben buys out Jerry's ownership in a firm but retains him as a salaried employee. Jerry gets a salary equal to the value of the share that he held in the firm. In this case, which of the following statements is true?

There is no change in the economic profit of the firm.

Question text ​If a firm is experiencing diseconomies of scale, its long-run total cost curve is upward sloping.

True

Explicit costs are:

actual monetary payments for resources purchased.

An implicit cost is:

an opportunity cost

Question text ​A variable cost is one that changes _____.

as output changes

The law of diminishing marginal returns states that:

as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.

If marginal cost exceeds average variable cost, then:

average variable cost is increasing.

Diseconomies of scale are pictured on a graph by the upward-sloping portion of the _____.

long-run average cost curve

The least-cost way of producing each particular rate of output is represented by the tangency points between the short-run average cost curves and the _____.

long-run average cost curve

A firm's long-run average cost curve is also called its _____.

planning curve

At the point where diminishing marginal returns set in, the slope of the total product curve is _____.

positive and decreasing

Question text ​Increasing marginal returns are generally the result of _____.

the specialization and division of labor

Question text ​Figure 7.1 shows the U-shaped cost curves for a producer. In the figure below, A is the marginal cost curve, B is the average variable cost curve, and C is the average total cost curve. When output is 10, then:

total cost equals $80.

Economic profit is defined as _____.

total revenue minus total costs

Question text ​Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the marginal product of the third unit of labor.

25 pairs of shoes

Table 7.4 shows labor, total product, and marginal product for a firm. In the table below, marginal returns increase with the hiring of up to _____ workers.

4

Which of the following probably has the shortest long run?

A law firm

Amanda, age 6, opens a lemonade stand. She makes all the lemonade from a mix she found in her parents' pantry. Her stand is an old box she found in the garage. The pitcher and paper cups were taken from the kitchen. Which of the following is true?

Amanda's explicit costs are zero

Which of the following statements is true

If the marginal product of a resource diminishes, its marginal cost rises and the total cost increases at a diminishing rate.

All other things constant, higher implicit costs result in lower accounting profit.

False

Implicit costs involve direct cash payments for the use of a resource.

False

The marginal product of labor is the _____.

change in output from using one more unit of labor

In the range of increasing marginal returns, total product is _____.

increasing at an increasing rate

The short run is a period of time:

during which at least one resource is fixed

Question text ​Doubling the circumference of an oil pipeline more than doubles the volume of oil that can be pumped through. This strategy is chosen only by large firms because it results in _____.

economies of scale

Suppose a professor gives up her teaching job to devote her time to writing textbooks. Soon after, salaries for professors rise. As a result, _____.

her economic profit from textbooks will fall

When diminishing marginal returns set in, total product _____.

increases at a decreasing rate

Opportunity cost usually:

is involved in calculating economic profit