Economics- Chapter 11

A firm has successfully adopted a positive technological change when A) it can produce more output using the same inputs B) it produces less pollution in its production process C) it can pay its workers less yet increase its output D) it sees an increase in worker productivity

A) it can produce more output using the same inputs

Variable Costs

costs that change as output changes

Fixed Costs

costs that remain constant as output changes

Average Fixed Cost

fixed cost divided by the quantity of output produced ATC= FC/Q

Economic Costs

includes both accounting costs and implicit costs

Why do firms experience economies of scale?

1. the firm's technology may make it possible to increase production with a smaller proportional increase in at least one input 2. both workers and managers can become more specialized, enabling them to become more productive, as output expands 3. large firms may be able to purchase inputs at lower costs than smaller competitors 4. as a firm expands, it may be able to borrow money at a lower interest rate, thereby lowering its costs

Which of the following is a fixed cost? A) payment to hire a security worker to guard the gate to the factory around the clock B) wages to hire assembly line workers C) payments to an electric utility D) costs of raw materials

A) payment to hire a security worker to guard the gate to the factory around the clock

The difference between technology and technological change is that A) technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs B) technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production C) technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques D) technology involves the use of capital equipment while technological change requires the use of brain power

A) technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs

Which of the following is an implicit cost of production? A) the loss in the value of capital equipment due to wear and tear B) the salary you pay yourself for running your business C) the utility bill paid to water, electricity, and natural gas companies D) the interest you pay your mother for the money she loaned you to start your business

A) the loss in the value of capital equipment due to wear and tear

Average total cost is A) total cost divided by the quantity of output produced B) total explicit costs divided by the quantity of output produced C) variable cost divided by the quantity of output produced D) the change in fixed plus variable cost divided by the quantity of output produced

A) total cost divided by the quantity of output produced

A characteristic of the long run is A) there are fixed inputs B) all inputs can be varied C) plant capacity cannot be increased or decreased D) there are both fixed and variable inputs

B) all inputs can be varied

Economic costs of production differ from accounting costs in that A) economic costs include expenditures for hired resources while accounting costs do not B) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not C) accounting costs include expenditures for hired resources while economic costs do not D) accounting costs are always larger than economic cost

B) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not

The long run refers to a time period A) during which a firm is able to purchase all of its inputs, including its plant and equipment B) long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant C) long enough for a firm to pay all of its creditors in full D) long enough for a firm to change the use of its variable inputs

B) long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant

The production function shows A) the total cost of producing a given quantity of output B) the maximum output that can be produced from each possible quantity of inputs C) the technology used to produce output D) the incremental output gained by improving the production process

B) the maximum output that can be produced from each possible quantity of inputs

Which of the following statements best describes the economic short run? A) It is a period of one year or less B) It is a period during which firms are free to vary all of their inputs C) It is a period during which at least one of the firm's inputs is fixed D) It is a period during which fixed inputs become variable inputs because of depreciation

C) It is a period during which at least one of the firm's inputs is fixed

Which of the following statements is true? A) Opportunity cost = explicit cost - implicit cost B) Total cost = fixed cost + implicit cost C) Total cost = fixed cost + variable cost D) Variable cost = wages + salaries + benefits

C) Total cost = fixed cost + variable cost

Long-run Average Cost Curve

a curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

Which of the following is an example of positive technological change? A) A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards B) A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards C) A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day

D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day

Which of the following is an example of a long-run adjustment? A) Your university offers Saturday morning classes next fall B) Ford Motor Company lays off 2,000 assembly line workers C) A soybean farmer turns on the irrigation system after a month long dry spell D) Walmart builds another Supercenter

D) Walmart builds another Supercenter

Which of the following is not a source of technological advancement for a producer? A) better trained workers B) more efficient physical capital C) higher skill level of managers D) outsourcing some aspect of production

D) outsourcing some aspect of production

A firm's cost of production is determined by all of the following except A) the technology used to produce its output B) the productivity of its workers C) the cost of raw material used in production D) the amount of corporate taxes it must pay on its profit

D) the amount of corporate taxes it must pay on its profit

What is the relationship between marginal product of labor and the marginal cost of output?

When the marginal product of labor is rising, the marginal cost of output is falling. When the marginal cost of labor is falling, the marginal cost of output is rising.

Explicit Cost

a cost that involves spending money aka accounting costs

Implicit Cost

a nonmonetary opportunity cost

Technological Change

a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs

Marginal Product of Labor

the additional output a firm produces as a result of hiring one more worker

What is the relationship between marginal and average products?

the average product of labor is the average of the marginal products of labor

Marginal Cost

the change in a firm's total cost from producing one more unit of a good or service MC= change in TC/change in Q

Total Cost

the cost of all the inputs a firm uses in production TC= FC+VC

Economic Depreciation

the difference between the what a person paid for their capital at the beginning of the year and what they would receive if they sold their capital at the end of the year

Opportunity Cost

the highest-valued alternative that must be given up to engage in an activity

Minimum Efficient Scale

the level of output at which all economies of scale are exhausted

Short Run

the period of time during which at least one of a firm's inputs is fixed

Long Run

the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant

Law of Diminishing Returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

Technology

the processes a firm uses to turn inputs into outputs of goods and services

Production Function

the relationship between the inputs employed by a firm and the maximum output the firm can produce with those inputs

Economies of Scale

the situation in which a firm's long-run average cost falls as it increases the quantity of output it produces

Diseconomies of Scale

the situation in which a firm's long-run average cost rises as the firm increases output

Constant Returns to Scale

the situation in which a firm's long-run average costs remain unchanged as it increases output

Average Product of Labor

the total output produced by a firm divided by the quantity of workers

Average Total Cost

total cost divided by the quantity of output produced

Average Variable Cost

variable cost divided by the quantity of output produced AVC= VC/Q

In the long run, all costs are _______; there are no ________ costs in the long run.

variable; fixed