Economic Ch. 9 Notecards

Which statement is true given the total cost function: Total cost = 10Q + 5Q2 + 100?

Average total cost at Q = 10 is 70

In the long run a firm will choose a plant size that has the:

Minimum average total cost of producing the target level of output

Based on the diagram above, which of the following statements is true?

Marginal cost at Q2 is the slope of line CB

Over the range of output where the slope of the short-run total cost curve becomes steeper:

Marginal cost is increasing

Cash expenditures a firm makes to pay for resources are called:

Explicit costs

Suppose that TC = $550, TVC = $500, and MC = $100. If the firm produces 10 units of output, then:

MC > AVC

If the price of labor or some other variable resource decreased, the:

MC curve would shift downward

If the minimum efficient scale (MES) in an industry is 20 percent of the total consumption of a product, how many MES plants could be supported profitably in that industry?

5

Which of the following is a typical example of a fixed cost of production in a business firm?

Depreciation of capital

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying:

"Sunk costs are irrelevant to a decision."

Implicit costs are:

"payments" for self-employed resources

Refer to the above table. The total variable cost of producing 5 units is:

$63

An industry is expected to expand if firms in the industry are earning positive:

Economic profits

The ability of Intel to spread product development costs over a larger number of units of output arises from:

Economies of scale

Refer to the above graphs. Minimum efficient scale occurs at:

Q2

Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of:

$500,000 and an economic profit of $200,000

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. Refer to the above information. The normal profits for Harvey in the first year were:

$5000

If there are ten plants producing the total domestic consumption of the product and each plant is operating at minimum efficient scale, then each plant accounts for what percentage of domestic consumption?

10 percent

The question is based on the following table that provides information on the production of a product that requires one variable input. Refer to the above table. With the addition of the second unit of input, the marginal product is:

15 and the average product is 10

The following data show the relationship between total costs and output in the short run. The firm's marginal costs are equal to average total cost somewhere between units:

3 and 4

Plant sizes get larger as you move from ATC-1 to ATC-4. Refer to the above table. The firm experiences minimum efficient scale at what output level?

3500

With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output quantity must be:

800 units

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis?

A change in production to a redesigned and retooled facility

A natural monopoly is characterized by:

A decreasing average-cost curve extending beyond the market's size

Fixed costs of production in the short run:

Cannot be reduced by producing less output

If economic profits in an industry are zero and implicit costs are greater than zero, then:

Accounting profits are greater than zero

If the price of a variable resource increased for the typical firm, there would be:

An upward shift in the MC curve

Assume a firm is operating at minimum average total cost in the short run. If there is a decrease in output it follows that:

Average fixed cost increases

The range over which average variable cost is increasing is the same as the range over which:

Average product is decreasing

Marginal cost can be defined as the:

Change in total cost resulting from one more unit of production

The reason the marginal cost curve eventually increases as output increases for the typical firm is because of:

Diminishing marginal returns

"The bigger the volume, the lower the cost, and we pass these savings on to you" is a familiar slogan. Its idea is illustrated in which of the above graphs?

Graph A

Refer to the above graphs. They show the long-run average total cost (LRATC) for a product. For which graph would a firm NOT be experiencing diseconomies of scale?

Graph A

Refer to the above graphs. They show the long-run average total cost (LRATC) for cars. For which graph is the output level Q0 at minimum efficient scale?

Graph A

Marginal product of labor refers to the:

Increase in output resulting from employing one more unit of labor

Fixed costs are those costs which are:

Independent of the rate of output

The question is based on the following table that provides information on the production of a product that requires one variable input. Refer to the above table. Marginal product is largest for the:

Second unit of variable input

According to the law of diminishing marginal returns:

The additional output generated by additional units of an input will diminish

At the point where diminishing marginal returns of an input sets in, the:

Marginal product starts to decrease

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. Refer to the above information. The economic profits of Harvey's firm in the first year were:

$160,000

Suppose that you could either prepare your own tax return in 15 hours, or hire a tax specialist to prepare it for you in 2 hours. You value your time at $11.00 an hour; the tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is:

$165

Refer to the above table. The average variable cost of producing 35 units of output is:

$4.57

The fixed cost of the firm is $500. The firm's total variable cost is indicated in the table. Refer to the above table and information. The average variable cost of the firm when 5 units of output are produced is:

$400

The following cost data are for a firm in the short run: What is the firm's average variable cost at an output of 5 units?

$60

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. Refer to the above information. The explicit costs of Harvey's firm in the first year were:

$605,000

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is:

$750

If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total variable costs are:

$930

If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is:

$94

The following schedule gives the cost data for a firm: Diseconomies of scale start between:

40 and 50 units of output

When a bakery manager reports that at her bakery, productivity of her 15 workers last month was 1,800 loaves per worker, she is referring to the:

Average product of labor

In the short run, total output in an industry:

Can vary as the result of using a fixed amount of plant and equipment more or less intensively

As output increases, average fixed costs:

Decrease

The following table shows the short-run total cost data for a firm. All of the following statements are correct, except that the firm has:

Economies of scale

When a firm doubles its inputs and finds that its output has more than doubled, this is known as:

Economies of scale

The law of diminishing returns implies:

Eventually, the more hours you spend studying per day, the less you will learn with each added hour

A firm encountering economies of scale over some range of output will have a:

Falling long-run average cost curve

Refer to the above graph. There are economies of scale:

From Q1 to Q2

The following statements about the "sunk cost fallacy" are true, except:

It refers to the fact that average fixed costs are not a major part of production costs

Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $1/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be:

Less than $1/unit

When a firm is experiencing economies of scale:

Long-run average total cost is decreasing

The law of diminishing returns in a manufacturing plant of a fixed capacity implies that, eventually, employing one:

More worker will decrease the average amount of output per worker

America Online's cost of delivering Internet access to each additional user has fallen over time because:

Of economies of scale

Diseconomies of scale occur mainly because:

Of the inherent difficulties involved in managing and coordinating a large business enterprise

Which would be an implicit cost for a firm? The cost:

Of wages foregone by the owner of the firm

Refer to the above graph. At which point does marginal product (MP) equal average product (AP) at a level of output?

Point B

Refer to the above graph. At which point is average product (AP) at its maximum?

Point B

Refer to the above graph. It shows the total product (TP) curve. At which point is the marginal product zero?

Point c

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should:

Pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost

The long run is a period of time, or a time-frame, in which:

The amount of all resources can be varied

Which of the following statements is false?

The short run refers to a period of less than one year

When the price of gasoline increases significantly, the delivery companies like UPS, FedEx, and the USPS all find:

Their TVC curves shifting up

The law of diminishing returns only applies in cases where:

There is at least one fixed factor of production

The law of diminishing returns explains why:

Total cost eventually rises faster and faster

When marginal cost is increasing:

Total cost must be increasing

A firm with fixed costs produces at the lowest point on its U-shaped average variable cost curve. If it raises output by 1 unit, then average:

Total cost will decrease

Refer to the above graph. If the firm is producing at Q1, the area 0ADQ1 represents:

Total costs

Economic profits are equal to:

Total revenues minus the opportunity costs of all inputs

Chris is preparing for a comprehensive course exam by reading a textbook with chapters of equal length and difficulty. The number of chapters she can comprehend and master when studying is: (1) hour one: 1.5 chapters; (2) hour two: 2.0 chapters; (3) hour three: 1.5 chapters; (4) hour four: 1 chapter; (5) hour five: 0 chapters. Diminishing marginal returns to studying sets in for Chris after hour:

Two

The table shows three short-run cost schedules for three plants of different sizes that a firm might build in the long run. Refer to the above table. Suppose that the three plant sizes shown are the only ones possible, then there are economies of scale in producing:

Up to 30 units of output, and diseconomies of scale after that