microeconomics chapter 7
short run because only one input changing
is law of diminishing marginal returns a short run or long run concept?
inverse
marginal product and marginal cost have an _________ relationship meaning when marginal product increases, marginal cost decreases because takes less additional labor to increase output if labor gets more productive
towards
marginal product line draws average product line _______ itself
average fixed cost
measures amount of total fixed cost per total product -AFC= TFC/TP
average product of labor
measures amount of total product per workers; ratio of TP to amount of labor hired -AP = TP/L or Q/L
average variable cost
measures amount of total variable cost per total product -AVC = TVC/TP
variable input
only input that changes in short run; increase output = increase _________ ______ = smaller increases in output -ex: often labor/wage
total product
total amount of output produced by firm for given quantity of inputs; analyzed in relation to change in variable input while fixed input doesn't change -positive slope; increase _____ _______ = increase number of workers
average cost
total cost at each level of output divided by total product; factors in fixed cost -AC = TC/TP -AC decreases as output increases because fixed cost spread out over more product
total variable cost
total cost of obtaining inputs; __________ bc changes with each level of output
C. The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time
A production function can best be described as which of the following? A. A graphical depiction of what can and cannot be produced with a given amount of inputs B. The quantity of inputs required to produce each unit of output in a given amount of time C. The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time D. The quantity of outputs created by a given quantity of inputs in a given amount of time
C. $20
Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week she would have to spend $6,100 per week. The marginal cost per hat is ______. A. $6,100 B. $100 C. $20 D. $5
A. Increase; decrease
An increase in technology will cause the total product function to ______________ and average costs to ______________. A. Increase; decrease B. Not change; decrease C. Not change; not change D. Increase; not change E. Increase; increase
D. 10.0
At 1,000 units of output the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. If labor is the only variable input and the weekly wage is $1,600, how much labor is being used produce 1,000 units of output? A. 5.0 B. 17.8 C. 16.0 D. 10.0
A. $16,000
At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to _____. A. $16,000 B. $41,000 C. $16 D. $41,000,000
B. $33,000
At 2,000 units of output, the variable cost of production is $12,500 per week. Total cost of producing 2,000 units per week is $45,500. The fixed cost of producing 2,000 units of output per week is equal to ______. A. $29,000 B. $33,000 C. $29.00 D. $22.75
B. $13,000
At 600 units of output, total fixed cost is equal to $1,000 and total variable cost is equal to $12,000. Total cost is equal to _______. A. $6,000 B. $13,000 C. $20 D. $21.67
B. $50
Consider this example: The total cost of producing 1,000 units of output is equal to $55,000 per week. The total cost of producing 1,010 units is equal to $55,500 per week. The marginal cost of increasing output from 1,000 units per week to 1,010 units per week is: A. $500 B. $50 C. $10 D. $5
1200
Consider two students, each earning 1300 on the quantitative and verbal portions of the SAT. The average SAT score for our group of two is 1300, of course. (1300 + 1300)/2. Suppose we add one more student to the group and calculate the new average. What is the average score if the third student has an SAT score equal to 1000?
1400
Consider two students, each earning 1300 on the quantitative and verbal portions of the SAT. The average SAT score for our group of two is 1300, of course. (1300 + 1300)/2. Suppose we add one more student to the group and calculate the new average. What is the average score if the third student has an SAT score equal to 1600?
1300
Consider two students, each earning 1300 on the quantitative and verbal portions of the SAT. The average SAT score for our group of two is 1300, of course. (1300 + 1300)/2. Suppose we add one more student to the group and calculate the new average. What will the new average be if the third student has an SAT score that is equal to 1300?
B. Rise
Currently, Frank has 10 employees. The marginal product of the 10 workers is 25 units per week. The average product of the 10 workers is 20 units per week. If Frank hires one more worker, the marginal product of the 11 worker will be 24 units per week. The average product of labor will ______________. A. Stay the same B. Rise C. Fall D. Equal the marginal product of labor
B. Fall
Currently, the marginal product of labor is 32 units per week. The average product of labor at the current level of output is 48 units per week. If the employer hires one more worker, the marginal product of labor will be 30 units per week. The average product of labor will ______________. A. Equal the marginal product of labor B. Fall C. Rise D. Stay the same
C. Rise
Currently, the marginal product of labor is 45 units per week. The average product of labor at the current level of output is 32 units per week. If the employer hires one more worker, the marginal product of labor will be 47 units per week. The average product of labor will ______________. A. Equal the marginal product of labor B. Fall C. Rise D. Stay the same
D. Decrease; increase
Diminishing marginal returns means that marginal product will eventually ______ and marginal cost will eventually _______. A. Increase; not change B. Decrease; not change C. Increase; decrease D. Decrease; increase
B. Decrease; not change
Diminishing marginal returns means that marginal product will eventually ______________ and the total product function will ______________ as production increases. A. Increase; not change B. Decrease; not change C. Increase; decrease D. Decrease; decrease E. Not change; not change
C. $25,000
If at 500 units of output, total fixed cost is equal to $10,000 and total variable cost is equal to $15,000. Total cost is equal to _____. A. $50 B. $15,000 C. $25,000 D. $1,250,000
D. Average cost must be decreasing
If average product is increasing as the variable input increases, which of the following is true? A. Average cost must be increasing B. Marginal cost must be increasing C. Marginal cost must be decreasing D. Average cost must be decreasing
C. $2,400
If labor is the only variable input a firm owner uses and the wage rate is $200 per week, what is the firm owner's variable cost per week if she hires 12 workers? A. $200 B. $1,200 C. $2,400 D. It depends on the level of output.
C. At its minimum point
If marginal cost is equal to average cost, average cost at this point must be ______________. A. Increasing B. Decreasing C. At its minimum point D. At its maximum point
D. 96
If the average product of labor is 12 units of output per worker per day when eight workers are hired, eight workers will be able to produce ______________ units per day. A. 12 B. 8 C. 10 D. 96
A. 105
If the average product of labor is seven units of output per worker per day, the total output of 15 workers will be ______________ units per day. A. 105 B. 7 C. 2 1/7 D. 70
A. $100,000
If the fixed cost of producing 50 units of output is $100,000 per year, the fixed cost of producing 100 units of output per year is _____. A. $100,000 B. $200,000 C. $50,000 D. $10,000
C. Stay the same
If the quantity of an input is fixed in the short run, its total cost will ______________ as output increases. A. Increase B. Decrease C. Stay the same D. Rise then fall
A. Increase
If the quantity of an input is variable in the short run, its total cost will ______________ as output increases. A. Increase B. Decrease C. Stay the same D. Rise then fall
B. Either labor or capital, both labor and capital
In a model with only labor and capital as inputs, in the short run the amount of ______________ is fixed, while in the long run the amount of ______________ is variable. A. Capital, capital B. Either labor or capital, both labor and capital C. Both labor and capital, either labor or capital D. Labor, labor
E. Increase; not change
In the short run, an increase in the price of one of the fixed inputs will cause average cost to ______________ and marginal cost to ______________. A. Increase; decrease B. Not change; not change C. Increase; increase D. Decrease; decrease E. Increase; not change
C. Increase; increase
In the short run, an increase in wages (the price of the variable input) will cause average cost to ______________ and marginal cost to ______________. A. Increase; decrease B. Not change; not change C. Increase; increase D. Decrease; decrease E. Decrease; increase
D. $2.00
Juan wants to increase production at his confection shop. If he hires one more worker, he can increase output by 100 candies per week. A confection worker's weekly wage is $200. Juan's marginal cost of increasing output by 100 candies per week is ______. A. $0.50 B. $1.00 C. $1.50 D. $2.00
minimum; decreases; increases
MC=AC, AC at ______ point MC<AC, AC _____ MC>AC, AC ______
maximum, increase, decrease
MP = AP, AP is at ______ point MP>AP, AP _______ MP<AP, AP ________
B. 5 floral arrangements in a day
Marcus has four employees. The four employees produce 55 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 60 floral arrangements in a day. The fifth employee's marginal product is __________. A. 60 floral arrangements in a day B. 5 floral arrangements in a day C. 11 ¾ floral arrangements in a day D. 12 floral arrangements in a day
C. The total cost curve
Marginal cost is the slope of _______. A. The average cost curve B. The average product curve C. The total cost curve D. The marginal product curve
Land; Capital; Capital; Labor; Land; Capital
Match the input to its correct category. 1. Cow 2. Robotic drill press 3. Computer software 4. Lawyer 5. Fresh water 6. Tractor trailer
Capital; Land; Labor; Labor; Land; Capital
Match the input to its correct category. 1. Laptop computer 2. Salmon 3. Janitor 4. Accountant 5. Corner Lot 6. Office building
D. $3.00
Peter can produce 50 lunches per hour for $1,250. If he hires one more cook for $15 an hour, he can produce 55 lunches per hour. The marginal cost of expanding hourly lunch production from 50 to 55 is _____. A. $1,265.00 B. $15.00 C. $23.00 D. $3.00
D. Increase
Samantha is evaluating whether to increase production at her book bindery. If she hires one more worker, she can increase output by 50 books per week. A book binder's weekly wage is $250. Samantha's marginal cost of increasing output by 50 books per week is $5.Using the information in the question above, if Samantha's average cost to bind books is $2.50 before hiring the additional book binder, her average cost to bind books will ______________ if she hires the additional worker. A. Depend on her level of output B. Stay the same C. Decrease D. Increase
C. $5.00
Samantha is evaluating whether to increase production at her book bindery. If she hires one more worker, she can increase output by 50 books per week. A book binder's weekly wage is $250. Samantha's marginal cost of increasing output by 50 books per week is ________. A. $0.20 B. $0.50 C. $5.00 D. $2.00
C. 40,000 candy canes
Santa Claus's only variable input is labor. The wage he must pay is 200 candy canes per week. What is Santa's total weekly variable cost if he hires 200 elves? A. 200 candy canes B. 400 candy canes C. 40,000 candy canes D. It depends on the level of output.
14000
Suppose that a factory is producing two automobiles per hour. The total fixed cost is $20,000. The total variable cost is $10,000. The average total cost is $15,000. If the cost of that additional automobile is $12,000, what is the new average?
15000
Suppose that a factory is producing two automobiles per hour. The total fixed cost is $20,000. The total variable cost is $10,000. The average total cost is ______________.
B. $2,733.33
The fixed cost of producing surfboards is $5,000 per month. The variable cost for producing 15 surfboards is $36,000 per month. The average cost of producing 15 surfboards in a month is ______. A. $333.33 B. $2,733.33 C. $2,400.00 D. $41,000.00
C. $2,200
The fixed cost of producing wedding cakes is $10,000 per month. The variable cost for producing 10 wedding cakes per month is $12,000. The average cost of producing 10 wedding cakes per month is ____. A. $1,000 B. $1,200 C. $2,200 D. $22,000
D. Decreasing; increasing
The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost. A. Increasing; increasing B. Increasing; decreasing C. Decreasing; decreasing D. Decreasing; increasing
C. 200
The production of 12,000 candy bars per day requires 60 workers. The average product of each worker is ______________ candy bars per day. A. 12,000 B. 600 C. 200 D. 20
A. 5
The production of 75 sofas per week requires 15 workers. The average product of each worker is ______________ sofas per week. A. 5 B. 15 C. 75 D. 225
D. Decrease
The slope of a firm's production function will ______ as the amount of a variable input used increases if the input experiences diminishing marginal productivity. A. Not change B. Be indeterminate depending on the amount of the variable input used C. Increase D. Decrease
C. Rises, stays the same, increases
Variable cost ______________ while fixed cost ______________ as output ______________ in the short run. A. Rises, falls, decreases B. Rises, stays the same, decreases C. Rises, stays the same, increases D. Falls, falls, decreases
B. Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output
What are two of the reasons that average cost tends to have a "bowl" shape? A. Fixed costs tend to dominate high levels of output and variable costs tend to dominate low levels of output B. Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output C. Fixed costs and variable costs tend to dominate low levels of output D. Fixed costs and variable costs tend to dominate high levels of output
B. As you increase the amount of a variable input, its marginal product eventually gets smaller.
What does diminishing marginal productivity mean? A. As you increase the amount of a variable input, its average product eventually gets smaller. B. As you increase the amount of a variable input, its marginal product eventually gets smaller. C. As you increase the amount of a fixed input, its marginal product eventually gets smaller. D. As you increase the amount of a variable input, total output eventually declines.
assume firm owner's primary goal is to earn a profit
What is the assumption that we make in the producer behavior model about a firm's main goal?
B. In the short run, labor runs out of available capital as more labor gets added to the production process.
Which of the following is a cause of diminishing marginal productivity? A. In the long run, labor gets tired as more labor gets added to the production process. B. In the short run, labor runs out of available capital as more labor gets added to the production process. C. In the long run, capital depreciates as more capital gets added to the production process. D. In the short run, capital gets more expensive as you add more capital to the production process.
B. Aaron hires two additional workers to help cover the holiday rush at his shop.
Which of the following most likely represents a short-run business decision? A. Jane is trying to decide whether to start a second franchise of her business. B. Aaron hires two additional workers to help cover the holiday rush at his shop. C. Xiang lists his delivery truck for sale in hopes of raising money to buy a new one. D. Ellen applies for a loan to finance an expansion of her plumbing business.
A. Yes
Will a change in fixed costs change average cost? A. Yes B. No
B. No
Will a change in fixed costs change marginal cost? A. Yes B. No
A. Yes
Will a change in fixed costs change total fixed cost? A. Yes B. No
B. No
Will a change in fixed costs change total variable cost? A. Yes B. No
diminishing; increasing
_________ marginal returns causes __________ marginal costs
marginal revenue
additional revenue obtained by firm when output increases with one additional unit -MR= change in TR/ change in Q Q= output
law of diminishing marginal returns
all other inputs constant, marginal product eventually decreases as more of variable input is used -ex: add more workers and marginal returns increase but eventually more workers causes decrease in marginal returns (maybe not enough resources)
marginal product of labor
change in amount of product (output) that results from change in amount of labor employed while holding other inputs constant -MP = change in TP/ change in L
average cost; total cost
change in fixed cost changes ________ ______ and _______ _______
increase; decrease
change in production function = marginal product and average product ______ and marginal cost, average cost, and total cost ________
total cost -marginal cost, total cost, and average cost all decrease if wage decreases
change in wage rates changes ______ _____
profit maximization decision
choose level of output where MR = MC -when MR>MC, firm can increase profits by producing more -when MR<MC, firm shouldn't produce more output
total fixed costs
cost of all fixed inputs; fixed bc doesn't vary as output changes; horizontal line on graph
marginal cost
cost of producing one more unit of output and resulting change in total cost; doesn't factor in fixed cost -MC = change in TC/ change in Q (output)
implicit costs
costs not with tangible $ value but represent allocation of resources towards obtaining specific output; opportunity costs -ex: opp cost of using one's savings to open business
explicit costs
includes all tangible costs (have clear $ value) -ex: wages, rent, electricity bill
decrease
increase amount of variable good = ________ marginal product
average cost; marginal cost
increase wage = ______ _____, ____ ____ and _______ ____ increase
long run
period of time long enough for all inputs to be changed; all inputs variable
rental rate of capital
price of capital
fixed input
producer can't change amount of input for length of time -ex: lawyer needs office space that is rented for a period of time that is constant; often capital
production function
relationship between quantities of inputs and total quantity of output produced in given time period
perfect competition
represents case of industry containing many small firms that produce identical products -goal: take price in market and profit maximum decision is on how much output to produce
short run
represents period of time so brief a firm can't change amount of every input; some inputs are fixed, only variable input can change
profit
the difference between total revenue and total cost -______ = TR-TC
total cost
total expense incurred in producing specific amount of output; sum of fixed and variable costs related to product of output; -TC= TVC + TFC
total revenue
value received from sale of good/service produced -TR= P x Q
maximize profits
what is the goal of the firm?
D. 45.00 office chairs
what is the marginal product of the 4 worker? worker 3 = 190, worker 4 = 235 A. 235 office chairs B. 58.80 office chairs C. 58.25 office chairs D. 45.00 office chairs
C. 55 units
what is the marginal product of the third worker? worker 2 = 135, worker 3 = 190 A. 40 units B. 50 units C. 55 units D. 60 units
