Econ 102 Exam #2

A book providing advice to entrepreneurs describes some business costs as being​ "the amount of money that will go out even if none at all comes​ in." a. The author is describing a​ business's ____ cost. b. Which of the following is an example of this type of​ cost?

fixed; rent for a store of warehouse

Assuming the marginal product of the second worker is​ 6, the law of diminishing marginal returns set in with the

fourth worker hired

When the average product of labor is decreasing​, the average product of labor is ____the marginal product of​ labor, and when the average product of labor is increasing​, the average product of labor is ____the marginal product of labor.

greater than; less than

Which of the following is most likely to be a fixed cost for a​ farmer?

insurance premiums on property

A firm cuts its workforce and is able to maintain its initial level of output. This is/is not an example of positive technological change.

is

A training program makes a​ firm's workers more productive. This is/is not an example of positive technological change.

is

An exercise program makes a​ firm's workers more healthy and productive. This is/ is not an example of positive technological change.

is

A firm rearranges the layout of its factory and finds that by using its initial set of​ inputs, it can produce exactly as much as before. This is/is not an example of positive technological change.

is not

a. A firm is able to cut each​ worker's wage rate by 10 percent and still produce the same level of output. This is/is not an example of positive technological change.

is not

The marginal cost curve intersects both the average variable cost and the average total cost curves at their maximum/minimum points

minimum

What is minimum efficient​ scale? Minimum efficient scale is

the level of output at which all economies of scale are exhausted. OR the level of output at which the long−run average cost of production no longer decreases with output.

What is the difference between total cost and variable cost in the long​ run? In the long​ run,

the total cost of production equals the variable cost of production.

Any cost that changes as output changes represents a​ firm's

variable cost

The marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum because

when the marginal cost of the last unit produced is below the​ average, it pulls the average​ down, and when the marginal cost is above the​ average, it pulls the average up.

What is likely to happen in the long run to firms that do not reach minimum efficient​ scale? A firm that does not reach its minimum efficient scale

will lose money if it remains in business.

Sally looks at her college transcript and says to​ you, ​"How is this​ possible? My grade point average​ (GPA) for this​ semester's courses is higher than my GPA for last​ semester's courses, but my cumulative GPA still went down from last semester to this​ semester." Explain to Sally how this is possible.

​Sally's GPA for this semester is lower than her cumulative GPA.

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or​ factory? A. Firms have difficulty coordinating production. B. Fixed costs become too large. C. Firms exhaust the benefits of specialization. D. Higher output levels result in lower market prices. E. The marginal product of labor begins to decrease according to the law of diminishing returns.

A

List the errors in the graph to the right ​(where AFC is average fixed​ cost, AVC is average variable​ cost, ATC is average total​ cost, and MC is marginal cost​).

AFC should be​ MC, ATC should be​ AVC, and AVC should be ATC.

What is the difference between the average cost of production​ (ATC) and marginal cost of production​ (MC)?

ATC = TC/Q​; MC =ΔTC/ΔQ.

How are implicit costs different from explicit​ costs?

An explicit cost is a cost that involves spending​ money, while an implicit cost is a nonmonetary cost

Economies of scale occur A. when the marginal product of labor increases with output. B. when a​ firm's long-run average costs decrease with output. C. when a​ firm's long-run average costs increase with output. D. when the marginal cost of production decreases with output.

B

The​ short-run average cost can never be less the​ long-run average costs because A. in the long​ run, a firm produces more output so that the​ per-unit cost in the long run becomes less than the​ per-unit cost in the short run. B. in the long​ run, all inputs are adjusted including the ones that are fixed in the short run. C. the​ long-run marginal cost is less than the​ short-run marginal cost. D. in the long​ run, a firm always experiences the economies of scope.

B

What are diseconomies of​ scale? Diseconomies of scale is A. when a​ firm's long-run average costs decrease with output. B. when the marginal product of labor is decreasing with output. C. when a​ firm's long-run average costs increase with output. D. when the marginal cost of production is increasing with output.

C

For which of the following​ reason(s) may firms experience economies of​ scale? A. ​Firm's production may increase with a smaller proportional increase in at least one input. B. Large firms may be able to purchase inputs at lower costs than smaller​ competitors; they can also borrow money at a lower interest rate. C. Both managers and workers may become more specialized and hence more productive as output expands. D. All of the above.

D

Devra​ Gartenstein, a restaurant​ owner, made the following observation about preparing​ food: "Cooks become increasingly less productive as a kitchen becomes increasingly​ crowded." ​What do economists call the problem she is​ describing? What are its implications for the marginal product of labor for​ cooks

Diminishing marginal​ returns, where additional cooks produce less additional output

What is the difference between the short run and the long​ run?

In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology.

Southwest signs a new contract with the Transport Workers Union that requires the airline to increase wages for its flight attendants. Marginal cost would ____​, average variable cost would ____​, average fixed cost would _______​, and average total cost would____.

Increase; increase; remain unchanged; increase

Is it possible for technological change to be​ negative? If​ so, give an example.

It is possible for technological change to be negative. An example is when a hurricane damages a firm's facilities.

Is the amount of time that separates the short run from the long run the same for every​ firm?

No

What is the difference between technology and technological​ change?

Technology is the process of using inputs to make​ output, while technological change is when a firm is able to produce the same output using fewer inputs

Do restaurant owners have a solution to this problem in the long​ run? Briefly explain.

Yes, restaurant owners can vary the​ size, or​ number, of kitchens.

Is it possible for average total cost to be decreasing over a range of output where marginal cost is​ increasing? Briefly explain

Yes. If marginal cost is less than average total​ cost, then average total cost will be decreasing

What is negative technological​ change? Negative technological change is when

a firm produces less output with the same inputs

What are implicit​ costs? An implicit cost is

a nonmonetary opportunity cost.

What is the law of diminishing​ returns? The law of diminishing returns states that... Does it apply in the long​ run?

adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline. No

The ATC and MC curves have their expected shapes because A. the ATC curve is U shaped. B. as the ATC curve​ falls, the MC curve lies below it and when the ATC curve​ rises, the MC curve lies above it. C. the MC curve is passing through the minimum point of the ATC curve. D. all of the above are true.

all of the above

How do specialization and division of labor typically affect the marginal product of​ labor? In the initial stages of​ production, specialization and division of labor lead to an increasing marginal product for​ workers,

allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently.

Which of the following is most likely to a variable cost for a business​ firm?

cost of shipping products

As the level of output​ increases, what happens to the difference between the value of average total cost and average variable​ cost? As the level of output​ increases, the difference between the value of average total cost and average variable cost

decreases because average fixed cost decreases as output increases.

For Jill​ Johnson's pizza​ restaurant, explain whether each of the following is a fixed or variable cost. 1. The payment she makes on her fire insurance policy is a __ cost. 2. The payment she makes to buy pizza dough is a __ cost. 3. The wages she pays her workers is a __ cost. 4. The lease payment she makes to her landlord who owns the building where her store is located is a __ cost. 5. The​ $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a __ cost.

fixed variable variable fixed fixed

Any cost that remains unchanged as output changes represents a​ firm's

fixed cost