micro test 2 ch 8

the marginal cost curve of any profit - maximizing firm is the firm's short run supply curve

agree: The MC curve is the supply curve above minimum AVC

perfect competition

an industry structure in which there are many firms, each small relative to the industry, producing identical products and in which no firm is large enough to have any control over prices. in perfectly competitive industries, new competitors can freely enter and exit the market

fixed cost

any cost that does not depend on the firms level of output. these costs are incurred even if the firm is producing nothing. there are no fixed costs in the long run

when the marginal product is at a maximum, the marginal cost is

at a minimum

marginal cost (MC) intersects the average variable cost (AVC) and the average total cost (ATC):

at their lowest, minimum, point

when marginal cost is below average cost,

average cost is declining same goes for average total cost

when marginal cost is above average cost,

average cost is increasing same for average total cost

the vertical distance on a graph between 2 lines

average fixed cost

average variable cost and average total costs get closer together as output increases because

average fixed costs decrease as output increases

in the short run, ____ costs exceed ____ costs

average total; average variable

when marginal cost (MC) is falling, which must be true?

average variable cost (AVC) is falling

economists usually assume that ____is a fixed input in the ___ run

capital; short

fixed costs are best described as:

costs that are incurred even if the firm is currently producing nothing

as output increases, average fixed cost ____ because your dividing a fixed number by a larger and larger number

declines

as output increases, average fixed costs

decrease as output increases but never reach zero

which statement is true? fixed costs

do NOT exist in the long run

marginal cost is ___ average variable cost when _____

equal to; average variable cost is minimized

firms will produce as long as marginal revenue ____ marginal cost

exceeds

average fixed costs

fall as output rises

suppose a firm pays $3250 per month to operate in the short run. from this, $2000 is spent on costs that do not change regardless of the level of the firms output. what are the total variable costs?

$1250

company produces 100 widgets. its average fixed cost is $5 and its total variable cost is $300. what is the total cost of producing 100 widgets?

$800

TVC =

(K x Pk) + (L x PL)

Firms make 3 decisions involving their production

1. the quantity of output to supply 2. how to produce that output ( which technique to use) 3. the quantity of each input to demand

a fixed factor implies diminishing returns (declining marginal product) and

a limited capacity to produce. as that limit is approached, marginal costs rise

average total cost curve is __ shaped

U

variable cost

a cost that depends on the level of production chosen

if the total variable cost of production is the sum of the marginal cost of each additional unit of output, we can calculate the marginal cost by taking the total variable cost of production and dividing it by the quantity of output produced. this statement is:

false; it is confusing marginal cost with average variable cost

the gate rental fees it pays to MCCarran international airport in las vegas. is this a fixed cost or variable cost for south airlines?

fixed

marginal revenue curve and the demand curve facing a competitive firm are

identical. the curves are a horizontal line

marginal costs ____ with output in the short run

increase

diminishing marginal returns implies

increasing marginal cost

which statement is NOT true regarding the total variable cost curve?

is a horizontal line what is true: shows the variable cost of production given current factor prices increases as output increase starts at the origin

what can be said of a firm's short run supply curve?

it is the marginal cost curve of the competitive firm

how would this affect the cost curves: a companys primary supplier of resources implements a 3% price increase for all of its supplies

marginal cost, average variable cost, and average total cost will increase. average fixed cost will not change

marginal cost intersects average total cost at ATC's

minimum point

marginal cost is the supply curve of a

perfectly competitive firm in the short run

efficient scale is the

quantity that minimizes average total cost

which statement is NOT true? Variable costs

remain constant as output goes up what is true is: are equal to total costs in the long run are zero if output is zero are equal to the difference between total cost and total fixed cost

declining marginal product implies that marginal cost will eventually

rise with output

in this business, what is the likely fixed factor of production that defines the short run? the fixed factor of production for a bank is most likely

the ATMs and the branch builds

marginal revenue (MR)

the additional revenue that a firm takes in when it increase output by one additional unit. in perfect competition, P=MR

marginal cost (MC)

the increase in total cost that results from producing 1 more unit of output. Marginal costs reflect changes in variable costs

marginal cost (MC) measures

the increase in total cost that results from producing an additional unit of output

which of the following is most likely to be a variable cost for a firm?

the payroll taxes that are paid on employee wages

spreading overhead is

the process of dividing total fixed costs by more units of output. average fixed cost declines as quantity rises

if a firm in a perfectly competitive market raises the price of its output

the quantity demanded of that firm's output will drop to zero

total variable cost curve expresses

the relationship between TVC and total output

whenever marginal revenue exceeds marginal cost,

the revenue gained by increasing output by 1 unit exceeds the cost incurred by doing it

total revenue (TR) is

the total amount that a firm takes in from the sale of its product: the price per unit times the quantity of output the firm decides to produce (P x q) TR = price x quantity

total fixed costs (TFC)

the total of all costs that do not change with output even if output is zero

total variable cost (TVC) is

the total of all costs that vary with output in the short run

average total cost (ATC) is

total cost divided by the number of units of output ATC = AFC + AVC

average fixed cost is

total fixed cost divided by the number of units of output; a per-unit measure of fixed costs. total fixed cost divided by the quantity of output

total cost (TC)

total fixed costs plus total variable costs TC = TFC +TVC

average variable cost (AVC)

total variable cost divided by the number of units of ouput AVC = (TVC/q)

homogeneous products

undifferentiated products; products that are identical to on another

in deciding whether to drive from New York to Pittsburgh, which costs would you consider?

variable costs, because they will increase with each mile driven

minimum point of AVC

when rising marginal cost intersects average variable cost

profit-maximizing output level is

where MR=MC or P=MC***