Exam #3
Economists normally assume that the goal of a firm is to (i)sell as much of their product as possible. (ii)set the price of their product as high as possible. (iii)maximize profit.
(iii)only
To an economist, it is conceivable that the objective that motivates an individual entrepreneur to start a business arises from an innate love for the type of business that he or she starts. a desire to earn a profit. an altruistic desire to provide the world with a good product.
All the above
Assume that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. Average total cost will be?
Always falling
Marginal cost tells us the
Amount by which output rises when labor is increased by one unit
Which of the following statements about costs is correct?
As the quantity of output increases, marginal cost eventually rises
Average total cost is very high when a small amount of output is produced because
Average fixed cost is high
When a firm is operating at an efficient scale
Average total cost is minimized
Diseconomies of scale often arise because higher production levels allow specialization among workers T/F
False
Economists normally assume that people start their own businesses to help society maximize its income T/F
False
Fixed costs are those costs that remain fixed no matter how long the time horizon is T/F
False
If the marginal cost curve is rising, so is the average total cost curve T/F
False
In the long run, a factory is usually considered a fixed input T/F
False
The average total cost curve is unaffected by diminishing marginal product T/F
False
The fact that many decisions are fixed in the short run but variable in the long run has little impact on the firms cost curves T/F
False
The shape of the total cost curve is unrelated to the shape of the production function T/F
False
Variable costs equal fixed costs when nothing is produced T/F
False
when economists speak of a forms costs, they are usually excluding the opportunity costs T/F
False
Which of the following costs do not vary with the amount of output a firm produces?
Fixed Costs
The long-run average total cost curve is always
Flatter than the short-run average total cost curve, but not necessarily horizontal
How long does it take a firm to go from the short run to the long run?
It depends on the nature of the firm
The amount by which total cost rises when the firm produces one additional unit of output is called
Marginal cost
The firm's efficient scale is the quantity of output that minimizes
Marginal cost
Diminishing marginal product suggests that the marginal
Marginal cost is upward sloping
Which of the following costs would be regarded as an implicit cost?
Opportunity Costs
The marginal product of an input in the production process is the increase in
Quantity of output obtained from an additional unit of that input
A total-cost curve shows the relationship between the
Quantity of output produced and the Total cost of production
Explicit Costs
Require an outlay of money by the firm
Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?
The cost of hookkeeping services
Which of the following statements about a production function is correct for a firm that uses labor to produce output?
The production function depicts the relationship between the quantity of labor and the quantity of output.
What can be added to profit to obtain total revenue?
Total cost
the amount of money that a firm pays to buy inputs is called
Total cost
Total revenue equals
Total output multiplied by price per unit of output
accounting profit is equal to
Total revenue minus the opportunity cost of producing goods and services
Profit is defined as
Total revenue minus total cost
A second or third worker may have a higher marginal product than the first worker in certain circumstances T/F
True
Accountants keep track of the money that flows into and out of firms T/F
True
Accountants often ignore implicit costs T/F
True
As a firm moves along its long run average cost curve, it is adjusting the size of its factor to the quantity of production T/F
True
Assume jack received all a's in his classes last semester, If jack gets all c's in his classes this semester his GPA may or may not fall T/F
True
Average total cost and marginal cost were merely ways to express information that is already contained in a firms total cost T/F
True
Average variable cost is equal to total variable cost divided by quantity of output T/F
True
Diminishing marginal product function becomes flatter as input increase T/F
True
Fixed costs are incurred even when a form does not produce anything T/F
True
Implicit costs are costs that do not require an outlay of money by the firm T/F
True
In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller facotires T/F
True
The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves T/F
True
The cost of producing an additional unit of a good is not the same as the average cost of the good T/F
True
The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve T/F
True
The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are T/F
True
Variable costs usually change as the firm alters the quantity of output produced T/F
True
When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale T/F
True
When trying to understand the decision making process of different firms, economists assume that people think at the margin T/F
True
because of the greater flexibility that firms have in the long run, all short run cost curve lie on or above the long run curve T/F
True
If a firm produces nothing, which of the following costs will be zero?
Variable costs
Economies of scale arise when
Workers are able to specialize
Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic
in the short run, but not in the long run
The marginal product of labor is equal to the
increase in output obtained from a one unit increase in labor
A production function is a relationship between
inputs and outputs
If marginal cost is below average total cost, then average total cost
is decreasing
Diminishing marginal product suggests that
marginal cost is upward sloping
Average total cost is increasing whenever
marginal is greater than average total cost
If marginal cost is rising
marginal product must be falling
The efficient scale of the firm is the quantity of output that
minimizes average total cost
An example of a fixed cost would be
rent, insurance premiums or loan payments
At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost
rises
The marginal cost curve crosses the average total cost curve at
the efficient scale
One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run
the size of the factory is fixed
Which of these assumptions is often realistic for a firm in the short run?
the workers can vary the number of workers it employs but not the size of its factory
The shape of the marginal cost curve tells a producer something about the margin product of her workers T/F
true
When a firm is able to put idle equipment to use by hiring another worker,
variable cost will rise
Average total cost reveled how much total cost will change as the form alter its level of production T/F
False
Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases T/F
False
Fixed costs can be defined as costs that
an incurred even if nothing is produced
If a firm wants to capitalize on economies of scale, it may be able to do so by
assigning limited tasks to their employees, so they can master those tasks
Which of the following must always be true as the quantity of output increases?
average fixed cost must fall
The cost of producing the typical unit of output is the firm's
average total cost
Marginal cost is equal to average total cost when
average total cost is at its minimum
When marginal cost is less than average total cost,
average total cost is falling
When marginal cost exceeds average total cost,
average total cost must be rising
Long-run average total cost curves are often U-shaped
because of increasing specialization of workers at low levels of production and increasing coordination problems at high levels of production.
In reference to setting the production level, a firm's cost curves
by themselves do not tell us what decisions the firm will make
The marginal product of labor can be defined as
change in labor divided b change in labor
One would expect to observe diminishing marginal product of labor when
crowded office space reduces the productivity of new workers
When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of
diminishing marginal product
Specialization among workers occurs when
each worker is allowed to perfect one particular task
Some costs do not vary with the quantity of output produced. Those costs are called
fixed costs