Econ 102 Quiz 7, Ch 22: The Firm Cost and Output Determination

the specialization effect

-additional workers hired enable specialization -productivity and marginal product increases due to specialization

economies of scale

-an increase in the scale of production (plant size) leads to a fall in unit costs (avg. cost) -the long run average cost (LAC) curve slopes downwards -if the firm doubled its inputs, output more than doubles

constant returns to scale

-an increase in the scale of production (plant size) leads to an increase in unit costs) -the long run average cost (LAC) is at its minimum point -if the firm doubled its inputs, output would double as well

diseconomes of scale

-average cost increases with increase in the scale of production -decreasing returns to scale -when all inputs are increased by a given percentage, output increases by a smaller percentage

the congestion effect

-eventually, there will be too many workers for fixed amount of capital -productivity and marginal product of labor decreases due to congestion

Average Product of Labor (APl)

Output per worker: Total Product (TP)/ Units of labor (number of employees)

Total Fixed Costs

TFC is sometimes called overhead. These are costs that do NOT vary with output

short run total cost

Total Cost = total variable costs + total fixed costs TC = TFC + TVC

Average Total Cost (ATC)

Total Costs (TC) / Output (q) or AFC+AVC

Suppose that one worker can produce 15 cookies, two workers can produce 35 cookies together, and three workers can produce 65 cookies together. What is the marginal product of the 2nd worker? a. 20 cookies b. 30 cookies c. 35 cookies d. 15 cookies

a

average total cost equals a. TC/ q b. TFC/ q c. change in total cost/ change in output d. TVC/ q

a

changes in production functions are associated with changes in a. technology b. the level of output c. the levels of cost d. demand

a

in economics, the planning horizon is defined as a. the long run, during which all inputs are variable b. 10 years for every firm c. the period of time for which technology is fixed d. the longest time period over which the firm can make decisions

a

in the table above, when the firm employs 4 workers, the marginal product will be a. 30 snowboards b. 35 snowboards c. 140 snowboards d. 208 snowboards

a

in the table below, what are the marginal costs of the fourth unit of output a. $10,000 b. $20,000 c. $40,000 d. $30,000

a

refer to the above table. At what quantity of labor does the law of diminishing marginal product set in ? a. after 2 units b. after 6 units c. after 3 units d. after 1 unit

a

refer to the above table. what does the marginal product equal when the quantity of labor goes from 1 to 2? a. 26 b. 92 c. 23 d. 46

a

the concept of the production function implies that a firm using resources inefficiently will a. obtain less output than the theoretical production function shows b. obtain more " " c. obtain exactly the amour that the " " d. not be subject to diminishing marginal product

a

the minimum possible short run average costs are qual to long run average costs when a. the long run curve is at a minimum point b. production is at any point on the LAC curve c. the plant is producing at its short run minimum point d. short run and long run costs are declining

a

using the above table, the total product and average physical product when 3 workers are emplyed are a. 39 and 13 respectively b. 37 and 27 c. 40 and 10 d. 36 and 12

a

when Super Stuff Corporation produces 5,000 units, total cost equal $150,000 and total variable costs equal $75,000. At this level of output, what is Super Stuff's average fixed cost a. $15 b. $225,000 c. $75,000 d. $30

a

when a firm uses technology improvements to increase outputs from the same amout of inputs, the result is a. a new production function b. losses c. guaranteed profits d. diseconmies of scale

a

which of the following is NOT one of the reasons a firm might be expected to experience economies of scale a. depreciation b. specialization c. improved productive equipment d. the dimensional factor

a

which of the following is a short run decision for a firm? a. firing workers b. downsizing the firm's manufacturing plant c. investing a new addition to the firm's manufacturing plant d. expanding the firm's distribution network of long haul freight trucks and smaller delivery trucks

a

Marginal Product of Labor (MRl)

a change in total product resulting from a one unit increase in the labor input: Change in total output/ change in labor input (number of workers) OR (deltaTP)/(delta L)

fixed input

a factor of production that cannot be varied in the short run

variable input

a factor of production whose quantity can readily be changed by the firm in the short run

Long run average Cost (LAC) curve

a locus of points representing the minimum cost of producing any given level of output, given current technology and resource prices

long run

a period of time long enough for the firm to change any of its inputs. All inputs can be varied

short run

a period of time short enough that some inputs cannot be varied. only some of the inputs are varied

economists generally define the short run as being a. any period of time less than one year b. that period of time in which at least one of the firm's inputs, usually plant size, is fixed c. any period of time less than six months d. that period of time in which all inputs are variable

b

if a firm gets so large that management of employees and other resources becomes a costly problem, it will be experiencing a. economies of scale b. diseconomies of scale c. constant returns to scale d. diminishing marginal product

b

in the figure above, point B represents a. the maximum efficient scale b. the minimum efficient scale c. the planning horizan d. the point of diminishing marginal product

b

refer to the figure. maximum efficient scale is at output rate a. Q1 b. Q2 c. Q3 d. Q5

b

when total product is rising, a. fixed cost must be rising b. marginal product must be positive c. variable cost must be declining d. marginal product must be negative

b

which of the following would be a fixed input to an automobile firm? a. steel b. a factory in Detroit c. car batteries d. engineers

b

Why is the average total cost curve U-shaped?

because of diminishing marginal product/ return

why is the minimum point of the average total cost curve to the right of the minimum (lowest) point of the average variable cost curve?

because the increase in the AVC is offset by the decrease in the AFC

Mr James' company produces candy bars. Which is NOT a variable input for this firm? a. sugar b. assembly line workers c. the big chocolate stirring machines d. packaging materials

c

Suppose a firm doubles its output in the long run. At the same time the unit cost of production remains unchanged. We can conclude that the firm is a. exploiting the economies of scale available to it b. facing diseconomies of scale c. facing constant returns to scale d. not using the available technology efficiently

c

according to the table above, at what usage of labor does diminihsing marginal product begin? a. 1 b. 2 c. 4 d. 5

c

average variable cost equals a. TC/ q b. TFC/ q c. TVC/ q d. change in total cost/ change in output

c

for a hotdog vender, the hotdog buns represent his a. fixed input b. sunk cost c. variable input d. none of the above

c

if in the short run total product is decreasing as more workers are hired, then the marginal (physical) product is a. increasing b. zero c. negative d. positive

c

if the marginal product is negative, then a. total product is rising b. average profit is rising c. total product is falling d. marginal cost is falling

c

if the price of labor is constant and a firm experiences diminishing magrinal product, then its a. marginal costs decrease b. fixed costs increase c. average variable cost increases d. total costs decrease

c

marginal cost equals a. TFC/ q b. TC/ q c. change in total cost/ change in output d. TVC/ q

c

production functions indicate the relationship between a. factor inputs and factor prices b. the value of inputs and average costs c. factor inputs and the quantity of output d. factor costs and output prices

c

refer to the above figure. Curve (4) is the a. marginal product curve b. average variable cost curve c. average fixed cost curve d. total fixed cost curve

c

refer to the above table. At an output of 4 units, average variable costs are a. $44 b. $38.50 c. $16 d. $22

c

the firm's short run costs contain a. only variable costs b. only fixed costs c. both variable and fixed costs d. none of the above

c

use the above figure. The AFC at output level 20 is a. $3.00 b. $10.00 c. $0.50 d. $1.00

c

which of the following is correct? a. TC = TFC - TVC b. TC = TFC / TVC c. TC = TFC +TVC d. TC = TFC * TVC

c

a basic distinction between the long run and the short run is that a. the opportunity costs of production are lower in the short run than in the long run b. if a firm produces no output in the long run, it still incurs a cost c. in the long run, some inputs are fixed, while in the short run, all inputs are variable d. in the short run, complete adjustment of all inputs is impossible, while in the long run all inputs can be adjusted

d

another term for the total quantity of output is a. marginal phyisical product b. average physical product c. average variable product d. total product

d

due to extremely large fixed costs, an electricity generating plant probably experiences which of the following returns to size? a. diseconomies of scale b. diminishing marginal product c. donstant returns to scale d. economies of scale

d

in economics, how long is the long run? a. more than 12 months b. 24 months or longer c. 5 years or more d. whatever time it takes a firm to vary all inputs

d

in the above figure, if this firm produces output level Q2, it has average variable costs of a. OF b. OC c. OD d. OE

d

refer to the above table. what are total fixed costs at an output of 2 units? a. $200 b. $100 c. $50 d. $150

d

suppose that a firm is currently producing 1,000 units of output. At this level of output, AVC is $1 per unit, and TFC = $500. What is the firm's TC? a. $499 b. $501 c. $1000 d. $1500

d

suppose that a firm is currently producing 500 units of output. at this level of output, TVC = $1000 and TFC = $2500. What is the firm's ATC a. $10 b. $5 c. $3 d. $7

d

the law of diminishing marginal product states that a. a doubling all inputs will double output b. output will continue to increase indefinitely if more variable factors of production are added to an existing stock of fixed factors c. variable costs tend to decrease with output d. successive equal sized increases in labor, when added to fixed factors of production, will result in smaller increases of output

d

the typical shap of the long run average cost curve is more like a. a circe b. an inverse of the letter "V" c. the letter "C" d. the letter "U"

d

which of the following would NOT be considered a fixed cost of production? a. insurance payments on plant and equipment b. the opportunity cost of capital c. interest payments on a loan d. wages paid to labor

d

which of the following would be a fixed input for an amusement park a. ticket takers b. unpopped popcorn c. concession workers d. the roller coaster

d

Average Fixed Cost (AFC)

fixed cost per unit produced. Total fixed Cost divided by the number of units of output produced. AFC = TFC / q

in the figure above, the long run cost curve between points A and B illustrates a. diseconomies of scale b. diminishing marginal product c. constant returns to scale d. economies of scale

pg 134 d

refer to the figure above. the curve reflects a. the law of diminishing marginal product of labor b. the law of increasing marginal product of labor c. the law of diminishing marginal product of capital d. the law of increasing marginal product of capital

pg. 133 a

Long run cost curve shape

shows the relationship between the average cost and the scale of production. shows how per unit costs change as the scale of production changes

short run Marginal Cost (MC)

the change in total costs due to a change in production of one unit. marginal cost is how much producing an additional unit of a good adds to total cost. the marginal cost is the cost of an additional unit of output produced. MC is a change in total cost (TC) divided by change in output MC = (delta TC) / (delta q) or MC = (delta TVC) / (delta q) because variable cost is the only component of TC that changes

labor

the human effort applied to the production process

Minimum Efficient Scale (MES)

the lowest level of output at which the firm's long run average costs (LAC) reaches minimum

physical capital

the machines and equipment used in production

law of diminishing marginal product

the observation that successive increases in a variable factor of production, such as labor, added to fixed factors of production will reach a point where the extra/ marginal product that can be attributed to each additional unit of the variable factor of production will decline "If a firm keeps increasing input, holding all other inputs and technology constant, the corresponding increases in output will become smaller eventually"

production

the process of combining inputs to generate outputs. The two key inputs are labor and physical capital

the production function

the relationship between inputs and outputs expressed numerically or mathematically. represents production technology and shows the maximum units of output (total product) as a function of units of inputs. output per time period = some function of capital and labor inputs

Total Variable Costs (TVC)

the sum of all costs that vary with the level of output in the short run. To produce more output, the firm has to use more inputs (these costs of additional inputs are a part of the firm's variable costs)

Why does the marginal cost curve intersect the minimum (lowest) point of the average variable cost curve and the minimum point of the average total cost curve

they're changing so average is not changing when MC = AVC, the average variable cost does not change. this is only possible at the minimum point of the AVC curve

average total cost

total cost per unit. total cost/ number of units of output produced. ATC = TC / q

Average Variable Cost (AVC)

variable cost per unit of output produced. total variable cost divided by quantity produced. AVC = TVC / q

average total costs (ATC) and marginal costs (MC)

when marginal cost (MC) is less than average total cost (ATC), the ATC is falling. When marginal costs (MC) is greater than average total cost, the ATC is rising. Marginal cost will equal average total costs at its minimum point

relationship between average variable costs (AVC) and marginal costs (MC)

when marginal cost (MC) is less than average variable costs (AVC), the AVC is falling. When marginal cost (MC) is greater than average variable cost (AVC), AVC is rising. marginal cost will equal average variable costs at its minimum point

relationship between the marginal product of labor and the short run marginal cost

when marginal product (MP) rises, marginal cost (MC) will fall; and when marginal product (MP) falls, marginal cost (MC) will rise