Homework 5 Questions (ch 9)

If a technological advance increases a firm's labor productivity, we would expect its

average total cost curve to fall.

Marginal cost is the

change in total cost that results from producing one more unit of output.

Which of the following is most likely to be an implicit cost for Company X?

forgone rent from the building owned and used by Company X

The minimum efficient scale of a firm

is the smallest level of output at which long-run average total cost is minimized.

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that

the firm experiences economies of scale.

Refer to the diagram. At output level Q, total cost is

0BEQ + BCDE.

Refer to the diagram. At output level Q, total fixed cost is

BCDE.

Assume a firm closes down in the short run and produces no output. Under these conditions,

TFC and TC are positive, but TVC is zero.

In the long run,

all costs are variable costs.

The short-run average total cost curve is U-shaped because

of increasing and diminishing returns.

Answer the question on the basis of the following cost data. Output Total Cost 0 $24 1 33 2 41 3 48 4 54 5 61 6 69 The marginal cost of producing the sixth unit of output is

$8

Refer to the diagram. At output level Q, total variable cost is

0BEQ.

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all non labor resources are fixed. Number of Workers Units of Output 0 0 1 40 2 90 3 126 4 150 5 165 6 180 The marginal product of the sixth worker is

15 units of output

Diseconomies of scale arise primarily because

of the difficulties involved in managing and coordinating a large business enterprise.

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's

total cost is $270.

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number of Workers Units of Output 0 0 1 40 2 90 3 126 4 150 5 165 6 180 Average product is at a maximum when

two workers are hired

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are

$5,000.

Answer the question on the basis of the following cost data. Output Total Cost 0 $24 1 33 2 41 3 48 4 54 5 61 6 69 The average fixed cost of producing 3 units of output is

$8

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

All are opportunity costs.

Which of the following is most likely to be a fixed cost?

property insurance premiums

Past costs that are not affected by new decisions are known as

sunk costs.

The long run is characterized by

the ability of the firm to change all its resources, viz. plant size.

Refer to the diagram. The vertical distance between ATC and AVC reflects

the average fixed cost at each level of output.

The basic characteristic of the short run is that

the firm does not have sufficient time to change the size of its plant.

Refer to the graph. A decrease in fixed costs is shown by

the shift of the short-run average total cost curve from ATC2 to ATC1

Fixed costs are associated with

the short run only.

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number of Workers Units of Output 0 0 1 40 2 90 3 126 4 150 5 165 6 180 Diminishing marginal returns become evident with the addition of the

third worker

A natural monopoly exists when

unit costs are minimized by having one firm produce an industry's entire output.

Economies and diseconomies of scale explain

why the firm's long-run average total cost curve is U-shaped.

Average fixed cost

declines continually as output increases.

The diagram above shows the short-run average total cost (ATC) curves associated with different plant size. As the firm in the diagram expands from plant size #3 to plant size #5, it experiences

diseconomies of scale.

If a firm's revenues just cover all its implicit costs, then

economic profit is zero, i.e. the firm makes a normal profit.

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

economic profits

The ability of Intel to spread product development and other "start-up" costs over a larger number of units of output results in

economies of scale.

The diagram above shows the short-run average total cost (ATC) curves associated with different plant size. As the firm in the diagram expands from plant size #1 to plant size #3, it experiences

economies of scale.

To the economist, total cost includes

explicit and implicit costs.

Cash expenditures a firm incurs to pay for resources are called

explicit costs

The short run is characterized by

fixed plant capacity.

Which of the following is most likely to be a variable cost?

fuel and power payments

To economists, the main difference between the short run and the long run is that

in the long run all resources are variable, while in the short run at least one resource is fixed.

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then

it is encountering constant returns to scale.

If a firm decides to produce no output in the short run, its costs will be

its fixed costs.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

marginal product of the third worker is 9.

Refer to the graph. Which one of the following would cause a move from point b on short-run average total cost curve ATC 1 to point e on short-run average cost curve ATC 2?

an increase in the wage rate

Fixed cost is

any cost that does not change when the firm changes its output.

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

Answer the question on the basis of the following cost data. Output Total Cost 0 $24 1 33 2 41 3 48 4 54 5 61 6 69 The total variable cost of producing 5 units is

$37

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

$200,000 and its economic profits were $0.

Answer the question on the basis of the following cost data. Output Total Cost 0 $24 1 33 2 41 3 48 4 54 5 61 6 69 The average total cost of producing 3 units of output is

$16

If you operated a small bakery, which of the following would be a variable cost in the short run?

baking supplies (flour, salt, etc.)