MACRO QUIZ 4

Andrew left his role as an economist at the U.S Postal Service where he made $170,000 per year to start his own private economic consulting company. During his first year of private consulting, he made $35,000 in economic profit. If Andrew's clients paid him a total of $400,000 for his consulting services, then what must Andrew's accounting profit be? (Hint: Remember that Economic Profit = Total Revenue - Explicit Costs - Implicit Costs whereas Accounting Profit = Total Revenue - Explicit Costs)

$205,000

True or false? The term firm is synonymous with a producer or a business.

True A firm is a producer or business that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs. Therefore, the term firm is synonymous with a producer or a business.

True or false? If at the end of the year, after taxes, a manufacturing firm has $150,000 in revenues, $60,000 in production costs, and $30,000 in opportunity costs, then the firm's economic profits total $60,000.

True Economic profits differ from accounting profits in that they include any opportunity costs a firm may have incurred. In this case, the production costs and the opportunity costs should be subtracted from revenues, giving the firm an economic profit of $60,000.

The graph below represents production costs at the apple orchard. The curve labeled 'A' represents what kind of curve?

marginal cost

Find the average total cost for producing 42 sneakers. Round your answer to the nearest hundredth.

To find the average total cost, divide the total cost by the quantity produced, $243 / 42 = $5.79.

Calculate the cost of producing 7 mugs. Round your answer to the nearest hundredths place.

$236.25 Cost=Workers (L)×Wage Rate per hour= 6.75×$35.00=$236.25

Factors of production or inputs include __________.

all of the above There are five main inputs or factors of production. They are natural resources, labor, capital, technology, and entrepreneurship.

Different production technologies are possible because ___________________.

machines and labor are somewhat substitutable Machines and labor are substitutable for some tasks, but are not perfect substitutes.

What is the marginal revenue of producing paper clips?

MR= 0.05

Calculate the average total cost of the 10th box of candy produced. Round your answer to the nearest hundredth.

$8.00

When do constant returns to scale occur?

when the LRATC remains constant as quantity increases Constant returns to scale refers to a situation where average cost does not change as output increases. In the middle portion of the long-run average cost curve, the flat portion of the curve, economies of scale have been exhausted. In this situation, allowing all inputs to expand does not much change the average cost of production. We call this constant returns to scale.

True or false? The difference between accounting and economic profit is that economic profit subtracts implicit costs, whereas account profit does not.

True Economic Profit = Total Revenue - Explicit Costs - Implicit Costs Accounting Profit = Total Revenue - Explicit Costs Substitute accounting profit into the economic profit equation to get Economic Profit = Accounting Profit - Implicit Costs Therefore, Economic Profit > Accounting Profit

Electricity falls into which category of factors of production?

natural resources Natural resources, or law and raw materials, include any ingredient, raw material, electricity, and agricultural product used to produce a good. Therefore, electricity falls into the natural resources category of production. Your answer:

Calculate the marginal cost of the 24th pound of steak produced. Round your answer to the nearest hundredth.

$2.14 MC=ΔTCΔQ ΔTC=TC1−TC2= $110−$80=$30 ΔQ=Q1−Q2= 24−10=14 MC= TC /Q = 30 /14 = 2.14

Jake is leaving Shoe Warehouse to open his own shoe boutique. Jake currently earns $40,000 a year at Shoe Warehouse, but he is expecting to earn $170,000 per year once he is established. Jake has rented a storefront for $40,000 per year and will have to spend $11,000 on inventory and furniture to start his business. Calculate Jake's economic profit.

$79,000

Company ABC has determined that their lowest total cost production technology is $300. If machines cost $50 and workers cost $30 how many machines produce this cost of production if the company has already determined it will hire 5 workers?

3 workers

Profit is found by subtracting operating costs from total revenue.

FALSE Each business, regardless of size or complexity, tries to earn a profit: Profit=Total Revenue−Total Cost

True or false?Diseconomies of scale can be represented by the portion of the long-run average cost curve with a downward slope.

False Diseconomies of scale can be represented by the portion of the long-run average cost curve with an upward slope.

True or false? A firm competing in a market where the LRAC curve has a clear minimum point has flexibility in its output.

False When the LRAC curve has a clear minimum point, any firm that produces a different quantity from that minimum will have higher costs.

The table above shows the demand for gum faced by Healthy Gum Company. Determine which price will provide the highest total revenue. What is the maximum revenue at this price?

P= 3, Maximum Revenue+ $18

Find the average fixed cost for producing 42 sneakers. Round your answer to the nearest hundredth.

$2.81​ To find the average fixed cost, divide the fixed cost by the quantity produced. $118/42=$2.81.

According to the graph below, profit losses occur when quantity exceeds what value?

3 Profit losses occur when total cost exceeds total revenue which happens on the graph after Q=3.

Company F is producing at a price at which it will continue working in the short-run until it's lease is up in 6 months. At what point will it decide to shutdown immediately?

Price = $10 Quantity = 25​ The intersection of the average variable cost curve and the marginal cost curve, which shows the price below which the firm would lack enough revenue to cover its variable costs, is called the shutdown point. This point on the graph above is at price equals $10 and quantity equals 25.

If a firm's total revenue is equal to $800 and its total costs are equal to $472, what are its profits?

Profit=$800−$472=$328. Profit = Total Revenue - Total Costs

The table below represents a firm's profit for producing and selling Blu Ray players. Using the marginal costs and marginal revenues provided, at what level of output does the firm maximize profits?

Q = 80

Above is a table of Firm A's total costs (TC) and total revenue (TR) at various quantities (Q). To maximize profit, at which quantity (Q) should this firm produce?

Q= 4

True or false? The shape of the long-run average cost curve determines the number and size of firms competing in the industry.

True The shape of the long-run average cost curve determines the amount of firms competing in an industry as well as the size of the firms. A LRAC curve with a clear minimum point does not allow for many firms to compete, but a flat-bottomed LRAC curve does.

Which two of the following are likely to occur as a perfectly competitive, constant cost industry expands?

as new firms enter the industry, the cost of production remains the same. the industry adjusts so that the additional output is produced at the same price it was before the expansion.

Which of the following occurs when the long-run average cost of producing each individual unit increases as total output increases?

diseconomies of scale By definition, diseconomies of scale occur when the long-run average cost of producing each individual unit increases as total output increases.

A fruit stand buys oranges for $0.50 a piece. They sell 45 oranges at $2.00 a piece. How much profit did the fruit stand make?

$67.50

If a manufacturing firm ends its year with a total revenue equal to its production costs and opportunity costs combined, then which of the following terms best describes its economic profit for the year?

Economic Profit=0

Which of the following types of cost changes with output?

total cost variable cost

True or false?Fixed costs increase or decrease with changes in output.

False Fixed costs will stay the same, regardless of output. They are the costs of fixed inputs, such as capital.

True or false?In a perfectly competitive market, there are limited amounts of buyers and sellers in the industry.

False In a perfectly competitive market, many firms produce identical products, many buyers are available to buy the product and many sellers are available to sell the product, sellers and buyers have all relevant information to make rational decisions about a product, and firms can leave the market without any restrictions.

True or false? In an increasing cost industry, the equilibrium price increases in response to an increase in quantity

True One characteristic of an increasing cost industry is that the equilibrium price increases in response to an increase in quantity.

True or false? Productive efficiency occurs when price equals minimum average total cost.

True Productive efficiency occurs when price equals minimum average total cost.

In a perfectly competitive market, if firms are initially making zero profit and then the price of the good the firms sell rises, all else being equal, new firms have an incentive to enter the market.

True This statement is true. When prices and profits rise, a firm has the incentive to enter the market if there are no barriers to entry.

A firm selling ovens produces 37 ovens at a price of $600 each. If the average total cost to produce an oven is $130, how much will the firm profit if it sells all 37 of the ovens?

$ 17, 390

At the end of the year, after taxes, a manufacturing firm has $230,000 in revenues, $90,000 in production costs, and $140,000 in opportunity costs. How much economic profit did the firm make?

$0

Calculate the marginal cost of the 23rd spring produced. Round your answer to the nearest hundredth.

$0.17 ΔTC $24−$20=$4 ΔQ 23−0=23 mc = 4 / 23 = 0.17

Hamburger Co has determined that their lowest total cost production technology is $460. If machines cost $100 and workers cost $40 what number of workers produces this cost of production, assuming Hamburger Co has already determined it will purchase 3 machines?

4 workers

Calculate the cost of producing 13 trash bags. Round your answer to the nearest hundredths place.

83.33 Cost=Workers (L)×Wage Rate per hour 5.600×$14.88=$83.33

A firm sells peanuts in a perfectly competitive market. Upon increasing production output from 60 packages to 75 packages, the total revenue increased from $300 to $375. What was the marginal revenue of this increase in production?

$15 Marginal revenue is calculated by dividing the change in total revenue by the change in quantity. In this case, the total revenue increased by $75 in response to a quantity increase of 15. The marginal revenue is

Calculate the average total cost for producing 104 model airplanes. Round your answer to the nearest hundredth.

.35 AC= TC / Q TC = 36 / 104 = 0.346 or 0.35

True or false?Constant returns to scale occur when the long-run average cost of producing each individual unit increases as total output increases.

False Constant returns to scale happens when expanding all inputs proportionately does not change the average cost of production.

Which of the following are other terms for the break-even point? Select the two correct answers below.

Other terms for the break-even point are zero economic profit and long-run equilibrium.

Economies of scale occur when a firm's long-run average total cost curve is ___________________.

downward sloping Economies of scale is associated with decreasing average cost of production as output produced increases. Graphically, it would result in a downward sloping long-run average cost curve.

Susan works for a large marketing firm where she earns $120,000 per year. Susan wants to quit her job and start her own marketing firm. She estimates that her total costs on direct business expenses will be $30,000. Susan will quit her job and start her own marketing firm only if she can earn $25,000 in economic profit. What is the minimum total revenue Susan must be able to earn for her to quit her job?

$175000

A firm that sells baseballs has estimated that at its current level of production its variable costs are $70 while its fixed costs are $50. The firm has sold $300 worth of baseballs this year. What is the firm's total profit?

$180 Total Profit = Total Revenue - Total Cost Total Profit = $300−($70+$50) Total Profit=$180

Find the average variable cost for producing 12 sneakers. Round your answer to the nearest hundredth.

$2.08 To find the average variable cost, divide the variable cost by the quantity produced. $25 / 12 = $2.08.

A technology firm has determined that their lowest total cost production technology is $880. If machines cost $100 and the company has determined that the combination of 7 machines and 9 workers yields the lowest total cost of production, what is the cost of each worker?

20 880= (9 x cost of workers) + ( 7 x 100) $180=9×cost of workers $180 / $9 =$20

Suppose in your industry, labor costs are $80 per day and each new machine costs $100 per day to operate. If each of the following production technology combinations produces the same output, which would your firm likely choose if you want to limit your costs?

3 Workers + 7 Machines 80 x 3 = 240 7 x 100 = 700 240+ 700 = 940

Question The table below represents a firm's profit for producing and selling spatulas. Assume that if a firm would have the same profit at two different levels of output, then the firm would choose the greater level of output. Assume that the only levels of output that the firm can produce are the levels of output given in the table. At what level of output does the firm maximize profits?

33 The profit-maximizing output choice for a perfectly competitive firm occurs at the level of output where marginal revenue is equal to marginal cost, or at 33 spatulas.

Why is a perfectly competitive firm called a "price taker"?

because the market determines the price at which the firm must sell its product A price taker does not have any say in setting its own prices but has to accept the market price. A perfectly competitive firm cannot set its own prices; they are determined by the market.

The sum of the fixed plus variable costs is known as _________.

total cost

Which of the following does not apply to an industry's market structure?

who the CEO of the largest company is Firms make decisions based on the industry's market structure, which is defined by how many sellers are in the market, how easy or difficult it is for a new firm to enter the market, and the types of products sold in the market.

A ______ cost is the cost of inputs that increase or decrease with production.

variable Variable costs are the costs of the variable inputs (e.g. labor). The only way to increase or decrease output is by increasing or decreasing the variable inputs. Therefore, variable costs increase or decrease with output.

Calculate the marginal cost for producing the 4th pair of sunglasses. Round your answer to the nearest hundredth.

$6.50 ΔTC=TC1−TC2= $58.50−$52.00=$6.50

The production function expressed in the table below represents the amount of cheeseburgers Burger Hut makes during a lunch hour based on the number of workers. Calculate the marginal product of the 9th worker.

13 110-97 = 13

In the graph below, what does the shaded area represent?

economic profit Marginal revenue is equal to price, which is above average total cost. Because of this, the shaded area represents economic profit. This rectangle is given the the equation: Profit = (P - ATC) * Q where (P - ATC) is the height of the rectangle and Q is the length.

A cost paid out of pocket is an ______ cost.

explicit An explicit cost is an out of pocket cost, or an actual payment such as wages and rent.

As output increases, a firm experiencing diseconomies of scale will see the long-run average cost (LRAC) curve ___________.

increasing By definition, diseconomies of scale occur when LRAC increases as the firm expands its output.

Which of the following are characteristics of an increasing cost industry?

all of the above. An increasing cost industry is an industry in which the old and new firms experience increases in their costs of production as the market expands, making the new zero-profit level intersect at a higher price than before.

Which of the following describes old and new firms experiencing lower costs of production as the market expands?

decreasing Cost Industry For a decreasing cost industry, as the market expands, the old and new firms experience lower costs of production.

Ebon opened up a small coffee shop which earned him $175,000 in total revenue the first year. To do this, Ebon had to quit his previous job as a barista where he earned $25,000 per year. Ebon calculated his economic profit to be $10,000, but he wants to know what his explicit costs were. What are Ebon's explicit costs?

$140,000

Sarah is buying and taking over a coffee shop. In order to do so, Sarah will purchase technology which costs $12,000. Sarah will spend $75,000 on the coffee shop building. Sarah expects to earn $120,000 a year at the coffee shop. Sarah is using her own coffee mugs and dishware at her shop, which are valued at $3,000. Calculate Sarah's accounting profit.

$33,0000 Act profit=Revenues−Explicit cost $120,000−87,000=$33,000

The production function expressed in the table below represents the amount of clocks that can be made in a given day based on the number of clock makers working. Calculate the marginal product of the 7th clock maker.

-1 clocks The formula for calculating marginal product is MP=ΔTP/ΔL. To find the change in TP, subtract the amount produced at 6 clock makers from the amount produced at 7 clock makers. ΔTP=−1 To find the change in labor, subtract 7−6=1.

The price a firm charges for a good, the output produced, and labor employed are all directly dependent upon __________.

-cost conditions -production conditions Production involves a number of important decisions that define a firm's behavior. These decisions include, but are not limited to: What product or products should the firm produce? How should the firm produce the products (i.e., what production process should the firm use)? How much output should the firm produce? What price should the firm charge for its products? How much labor should the firm employ? The answers to these questions depend on the production and cost conditions facing each firm.

The market price of one package of raspberries sold in a perfectly competitive market is $7. Based on this information, what is the marginal revenue of increasing production from 30 packages to 45 packages? Hint: Note that Marginal Revenue is the "per unit" increase in revenue.

MR = 7

Which of the following explains a firm's output when the long-run average cost curve has a flat bottom?

firms are able to produce at a variety of output levels along the flat bottom of the curve. When the LRAC curve has a flat bottom, firms producing at any quantity along the flat bottom can compete because costs remain low.

In which of the following scenarios will economies of scale occur?

when the LRATC decreases as quantity increases Economies of scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down. The economies of scale curve is a long-run average cost curve, because it allows all factors of production to change. As long-run average cost is decreasing and quantity is increasing, economies of scale are occurring.

Bob's Tire Company has earned $500,000 of revenue this year. The company has a rental payment of $3,000 per month, insurance payments of $1500 per quarter, and Bob pays himself a yearly salary of $80,000. What is Bob's Tire Company's accounting profit this year?

$378,000 Accounting Profit = Revenue - Explicit Costs Accounting Profit=$500,000−$122,000=$378,000 Bob's Tire Company has made $378,000 in accounting profit.

It costs a cookie firm $2 to sell a single cookie. This firm makes $4 in revenue from each cookie it sells. Assume this firm sells 20 cookies. What is its total profit?

$40

A law firm's total profits equal $500,000. Its total revenues equal $900,000. What are this firm's total costs?

$400,000

8 apple pickers at an orchard can pick 240 apples in a given hour. When a 9th apple picker is added to the group, 300 apples can be picked in an hour. Calculate the marginal product of adding the 9th apple picker.

60 APPLES To find the change in TP, subtract the amount produced by 8 apple pickers from the amount produced at 9 apple pickers. ΔTP=300−240=60 To find the change in labor, subtract 9−8=1.

The Montgomerys are opening up a smoothie shop. Mr. Montgomery is giving up his real estate position making $150,000 a year and Mrs. Montgomery did not work outside of the home prior to the opening of the smoothie shop. The Montgomerys are renting a building in a strip mall for $17,000 per year. They anticipate spending an average of $20,000 on ingredients and appliances each year, and they anticipate revenue of $300,000 a year once they are established. Calculate the Montgomerys' annual economic profit.

The economic profit of $113,000 does reveal that the Montgomerys could in fact be economically successful by opening up their own smoothie shop.

True or false? In a perfectly competitive market, the industry supply curve is equal to the marginal cost curves of the individual firms that make up that industry.

True If input costs change a firm's variable costs, its average total cost curve will reflect these changes. Any change in marginal cost produces a similar change in industry supply, which can be found by adding up the marginal cost curves for individual firms.

True or false? Labor, a factor of production, includes both physical human effort and mental human effort.

True Labor is the physical and human effort required during production.

True or false?The production function answers the question "how much output can the firm produce given different amounts of inputs?"

True The production function is a mathematical equation that explains the engineering relationship between inputs and outputs and answers the question - how much output can the firm produce given different amounts of inputs?

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

a leased store front for a sandwich shop To lease a building, an entrepreneur must sign a lease and is stuck with the building until the lease expires. The entrepreneur cannot get rid of the building in the short run but can hire more sandwich makers, order more supplies, and use more electricity. Therefore, a leased store front is a fixed input.

When price is _______ average cost of production, profits are ______ due to a ________ profit margin.

above; positive; positive Average profit, or profit margin depends on the relationship between price and average total cost. If price is greater than average total cost, profit margin is positive, meaning the firm earns profits.

The graph below shows price and average cost for a perfectly competitive firm. Which of the following is true about this firm's current economic profit?

economic profit is zero In short-run equilibrium, perfectly competitive firms produce at the quantity where the marginal revenue curve intersects the marginal cost curve. When price intersects marginal cost at a level equal to average cost, profit is zero and the firm is breaking even. At this point, price is exactly equal to the average cost of production which is why the firm neither earns profits nor suffers losses.

In a perfectly competitive market in long-run equilibrium, an increase in demand creates economic profit in the short run and _________________ in the long run.

induces entry In a perfectly competitive market in long-run equilibrium, an increase in demand creates economic profit in the short run and induces entry in the long run; a reduction in demand creates economic losses (negative economic profits) in the short run and forces some firms to exit the industry in the long run.

Which of the following accurately explains why firms in perfectly competitive markets are price takers?

the pressure of competition forces all firms to accept the prevailing equilibrium price in the market. A perfectly competitive firm is known as a price taker, because the pressure of competing firms forces them to accept the prevailing equilibrium price in the market. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors.

The production function expressed in the table below represents the number of bowls produced at a pottery studio in a given day based on the number of artists working. Calculate the marginal product of the 4th artist.

2 bowls To find the change in TP, subtract the amount produced at 3 artists from the amount produced at 4 artists. ΔTP=13−11=2 To find the change in labor, subtract 4−3=1.

_________ are what the firm pays for the use of the factors of production.

Factor Payments

Calculate the marginal revenue for Firm ABC's sales of toothbrushes by using the data in the table below. Assume the toothbrush industry is in perfect competition.

MR = $9

Bunny Bop indoor play center was just informed by OSHA that their safety standards need to increase, which means hiring more staff and making minor repairs. These cost increases will significantly increase their cost schedules. Their new cost curves are plotted below. Bunny Bop must decide whether or not to stay open. What is their shut-down point?

Price= $ 20 Quantity = 25 The intersection of the average variable cost curve and the marginal cost curve, which shows the price where the firm would lack enough revenue to cover its variable costs, is called the shutdown point. For Bunny Bop, their shutdown point where MC and AVC cross is price equals $20 and quantity equals 25.

Is the statement below True or false? If a firm is unable to cover its fixed costs in the long-run, then the firm must exit the market.

True Inability to cover fixed costs will eventually lead to bankruptcy. While a firm can operate in a short-run loss this must improve at some point to remain in the market.

Opportunity cost of a machine a firm already owned is an example of _________.

an implicit cost An implicit cost is a subtle cost, such as opportunity cost, owner contributed resources, and depreciation of goods.

Which of the following describes the characteristics of a decreasing cost industry?

an industry in which old and new firms experience lower costs of production as new firms enter the market, making the new zero-profit level intersect at a lower price than before

If the long-run average cost curve has a ___________, competing firms that produce at minimum costs will have to produce the same exact quantity of output.

clear minimum point When the LRAC curve has a clear minimum point, any firm that produces a different quantity from that minimum will have higher costs. All firms who choose to produce at the minimum cost will produce the same output.

A firm finds that producing 30,000 vases costs $180,000 and producing 40,000 vases costs $280,000. This pattern might be explained by ___________________.

diseconomies of scale machines and labor are perfect complements

At the end of the year, after taxes, a manufacturing firm has $150,000 in revenues, $60,000 in production costs, and $30,000 in opportunity costs. How much economic profit did the firm make?

$60,000. Economic profits differ from accounting profits in that they include any opportunity costs a firm may have incurred. In this case, the production costs and the opportunity costs should be subtracted from revenues, giving the firm an economic profit of $60,000.

At a price of $10 a firm is willing to sell 100 units of output. At this level of output, it costs the firm an average of $10 to produce a unit of output. What is the total profit of the firm?

$ 0

Miss T's Ice Tea hit the ground running with its new product launch this year. At the end of the year, after taxes, they have $2,390,000 in revenues. They also have paid $800,000 for ingredients and supplies, $235,000 in wages, and $75,000 in rent. How much accounting profit did they make?

$1,280,000

Calculate the average total cost for producing 70 bags of sunflower seeds. Round your answer to the nearest hundredth.

$2.43 170 / 10 = 2.43

Debbie has a total cost of $80 for selling 40 fruit baskets. If she earns a revenue of $320 for these, what is her total profit?

$240 Profit=total revenue-total cost $320−$80=$240

At the end of the year, after taxes, a law firm has $600,000 in revenues, $80,000 in rent, wages, and supply costs, and $50,000 in opportunity costs. How much economic profit did the firm make?

$470,000. Economic profits differ from accounting profits in that they include any opportunity costs a firm may have incurred. In this case, the production costs and the opportunity costs should be subtracted from revenues, giving the firm an economic profit of $470,000.

Calculate marginal revenue for this firm.

$5.00 Marginal revenue equals the change in total revenue divided by the change in quantity. The total revenue changed from $5 to $40 giving us a total revenue change of $35. The quantity changed from 1 to 8 giving us a quantity change of 7. Finally to solve for the marginal revenue divide 35 by 7. Marginal revenue equals $5 MR= Change in total revenue -------------------------- Change in quantity (40-5) / (8-1) = 5

Consider the following table showing two possible production technologies that can be used to produce a clothing line. If the cost of workers is $120 per worker per day, and the cost of machines is $80 per machine per day, what is the number of machines that minimizes the firm's cost of production?

5 machines​ First, we want to determine which of the two technologies minimizes cost of production. We calculate total cost by summing Cost of capital and Cost of Labor as in the last column of the below table. Production technology B is chosen. We then determine from the cost of capital being $400 that five machines were used.

The table below represents a firm's profit for producing and selling candles. Assume that if a firm would have the same profit at two different levels of output, then the firm would choose the greater level of output. Assume that the only levels of output that the firm can produce are the levels of output given in the table. At what level of output does the firm maximize profits?

60 candles​ The profit-maximizing output choice for a perfectly competitive firm occurs at the level of output where marginal revenue is equal to marginal cost. The candle firm maximizes profits at 60 candles.

______, also known as profit margin, is the profit divided by quantity produced, or average revenue minus average cost.

Average PROFIT

Profit margin is synonymous with the term _______ and tells whether or not total profit will be positive.

Average profit and profit margin are synonymous. They are equal to price - average cost.

ill in the blanks using the graph below. If company Econislife produces between quantities ___ and ___ they will make a profit.

In order to make a profit a firm's total revenue must be greater than their total costs. According to the graph below, this will happen for company Econislife between the quantities of 10 and 35.

What term is best described as the idea that the particular mix of goods a society produces represents the combination that society most desires?

allocative efficiency Allocative efficiency is the idea that the particular mix of goods a society produces represents the combination that society most desires.

In the graph below, what does the shaded area represent?

economic loss The rectangle represents economic loss. This is because price is less than average total cost at the profit maximizing quantity. The rectangle shape is given by the formula: Profit = (P - ATC) * Q where (P - ATC) is the height and Q gives the length.

If a firm is experiencing economies of scale in its production process, which of the following will occur when the firm increases its output?

its long-run average total costs will fall By definition, a firm is said to experience economies of scale when long-run average cost declines as the firm expands its output.

All of the following are examples of fixed costs, except:

labor Fixed costs are the costs of the fixed inputs. Because fixed inputs do not change in the short run, fixed costs are expenditures that do not change regardless of the level of production. Whether you produce a great deal or a little, the fixed costs are the same. Labor is not a fixed cost. It is an example of a variable cost because it increases or decreases with output. The more output that is produced, the more labor is needed.

Average profit, or profit divided by quantity, is also known as ________.

profit margin Average profit, or profit margin depends on the relationship between price and average total cost. If price is greater than average total cost, profit margin is positive and indicates that the firm is earning profits.

The long-run average cost (LRAC) curve is actually based on a group of ______________, each of which represents one specific level of fixed costs.

short-run average cost curves The long-run average cost (LRAC) curve is actually based on a group of short-run average cost (SRAC) curves, each of which represents one specific level of fixed costs. More precisely, the long-run average cost curve will show the least expensive average total cost for any level of output.