Econ ch 7

What is the average total cost at an output level of four units?

$1,500.

Which of the following is an example of a fixed input?

All of these. The acreage of a farmer's land. Property tax that doesn't vary with changing production of a firm. The size of a firm's plant.

Which of the following statements is true?

TFC = TC TVC.

In the long run, total fixed cost:

does not exist.

The short run is a period of time:

in which a firm uses at least one fixed input.

The total fixed cost curve:

remains constant regardless of output.

Explicit costs would include:

rent.

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

rising.

Marginal cost is best defined as:

the amount added to total cost when one more unit of output is produced.

As a fishing firm hires its first, second, and third workers, it could find that marginal product actually rises. The reason for this is:

the division of labor creates greater productivity.

In the short run, a firm will eventually experience rising per-unit costs because of:

the law of diminishing returns.

The law of diminishing marginal returns implies that, in the short run:

the marginal product of the variable input must eventually decrease.

A firm has $200 million in total revenue and explicit costs of $100 million. Suppose its owners have invested $80 million in the company. The firm's economic profit is:

$ 20 million.

Suppose a firm has total revenue of $200 million, explicit costs of $190 million, and implicit costs of $20 million. This firm's accounting profit is:

$10 million.

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be:

$2,500.

A firm estimates that when output is 10, its total costs are $900. It also finds that when output is 11, its total costs are $920. The marginal cost of the eleventh unit of output is:

$20.

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000, for food and $2,000 for gas and electricity. What are his implicit costs?

$26,000.

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes this year equaled $90,400. Sam's explicit costs this year equals:

$39,000.

A farm can produce 10,000 bushels of wheat per year with 5 workers and 13,000 bushels with 6 workers. The marginal product of the sixth worker for this farm is:

3,000 bushels.

A farm is able to produce 9,000 pints of strawberries per season on 10 acres. It adds one more acre and is able to produce 12,000 pints per season. The marginal product of land for this farm is:

3,000 pints per acre per year.

Which of the following statements is true?

All of these. Economic profit equals accounting profit minus implicit costs. The short run is any period of time in which there is at least one fixed input. A fixed input is any resource for which the quantity cannot change during the period under consideration. In the long run there are no fixed costs.

Variable inputs are defined as any resource that:

Changes as output changes.

Which of the following is most likely to be true of economic and accounting profits?

Economic profits are less than accounting profits.

Which firm in the above diagram displays a long-run average cost curve with diseconomies beginning at 2,000 units of output per week?

Firm A.

In the above diagram, which firm's long-run average cost curve experiences constant returns to scale beyond 2000 units of output?

Firm B.

Which firm in the above graph displays a long-run average cost curve with economies of scale throughout the range of output shown?

Firm C.

Which of the following is true if the average variable cost curve is rising?

Marginal cost is increasing.

Paul's Plumbing is a small business that employs 12 people. Which of the following is the best example of an implicit cost incurred by this firm?

The accounting services provided free of charge to the firm by Paul's wife, who is an accountant.

Which of the following is not an explicit cost?

The firm owner's time.

Which of the following will become smaller and smaller as the firm expands output?

average fixed cost .

When marginal cost is below average total cost:

average total cost is falling.

Economies of scale imply that within some range one can increase the size of operation and:

average total cost will decrease.

When total revenue minus total cost is equal to zero, the firm is:

earning a normal profit.

An economist left his $100,000-a-year teaching position to work full-time in his own consulting business. In the first year, he had total revenue of $200,000 and the business explicit costs are $150,000. He made a(n):

economic loss.

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's:

economic profit.

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys their goods in large quantities and therefore at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices and free parking. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that:

economies of scale exist at Wal-Mart.

A downward-sloping portion of a long-run average total cost curve is the result of:

economies of scale.

Long-run economies of scale exist when the long-run average cost curve:

falls.

Constant returns to scale cause the long-run average cost curve to be:

horizontal.

If a firm enlarges its factory size and realizes higher average (per unit) costs of production then:

it has experienced diseconomies of scale.

The sum of the explicit and implicit costs incurred in the production process is called:

total cost.