Ch07 Cost-Industry Structure

The economies-of-scale curve is a long-run average cost curve, because

it allows all factors of production to change.

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

$1.00

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

$2.00

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

$2.43

In the US economy, nearly half of all the workers employed by private firms work at

18,000 large firms that employ more than 500 workers.

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

35%

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

A = 20; E = 5

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

A = 42, E = 12

_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.

Agglomeration factors

___________ tells a firm whether it can earn profits given the price in the market.

Average cost

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

Total costs

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

______________ include all of the costs of production that increase with the quantity produced.

Variable costs

In economics, a firm that faces no competitors is referred to as _________________.

a monopoly

In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.

acquire energy efficient production technologies

The graph above illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

as the point where the total cost curve touches the vertical axis

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

average cost

A situation where the level of output, scale and average costs are all rising is called

both a and b are correct

The ______________ of all firms can be broken down into some common underlying patterns.

cost structure

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

costs incurred in the act of producing

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development

The graph above illustrates the total cost function for GoodieCookie Co. The changing slope of the total cost curve reflects this company's

decreasing marginal costs.

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

decreasing returns to scale

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

diseconomies of scale

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

do so regardless of what type of competition exists in a market.

The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________.

economies of agglomeration; corresponding diseconomies

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.

economies of scale; a larger factory can produce at a lower average cost than a smaller company.

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change,

Economies of scale may arise from all but one of the following. Which one is it?

government economic subsidies protect firms from competition to avoid losses.

The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

in the long-run, the demand curve and average revenue shift as other firms enter the market and increase competition

In microeconomics, the term _____________________ is synonymous with economies of scale.

increasing returns to scale

Refer to the table below. If the firm sells 5 units at a price of $30 each, then the marginal unit produced

is subtracting from profits.

Refer to the table below. If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

losses equal $5

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

physical space for the gallery

Refer to the graph shown above. Based on the information illustrated in the graph, which of the following is correct?

producing a marginal unit is increasing average costs overall

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

Refer to the table below. If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

profits equal $40

Refer to the table below. If this information were used to create a total cost graph, the curve should

reflect all of the above.

Fixed costs are important because, at least in the ___________, the firm _______________.

short run; cannot alter them

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output

Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?

the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve

The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

this market is imperfectly competitive with excess profits possible in the short-run

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce

If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely

use production technologies that conserve on the number of workers.

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.

variable cost; fixed costs

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals

whether the firm is earning profit if fixed costs are left out of the calculation.