Chapter 13 | Costs of Production
The lost opportunity to invest in other capital markets when the money is invested in one's business is an implicit cost of production.
True
The marginal cost curve crosses the average total cost curve at the efficient scale, which occurs at the minimum point on the average total cost curve.
True
The marginal cost of the sixth unit equals the total cost of six units minus the total cost of five units.
True
Variable cost changes as output changes because more of the variable input is used as more output is produced.
True
Diseconomies of scale occur when long-run average total costs fall as output increases.
False
The average variable cost curve and average total cost curve will eventually intersect as output increases because average fixed cost eventually becomes negative.
False
The marginal product of labor is equal to the increase in labor necessary to generate a one unit increase in output.
False
When marginal cost is more than average total cost, average total cost is falling.
False
Marginal cost equals the change in variable costs divided by the change in quantity produced.
True
A firm has a fixed cost of $20,000 in its first year of operation. When the firm produces 1,000 units of output, its total costs are $80,000. When it produces 1,100 units of output, its variable costs are $70,000. If the marginal cost of each of the 100 additional units of output is the same then the marginal cost of producing the 1,050th unit of output is less than $90.
False
Average variable cost is increasing whenever variable cost is increasing.
False
Ellen quit her $100,000 a year corporate engineering job to open up her own engineering business. In Ellen's first year in business her total revenue equaled $190,000. Ellen's explicit cost during the year totaled $100,000. As a result Ellen's economic profit for her first year in business is more than zero.
False
If you know the average variable cost of 100 units and the average total costs of 100 units then you have sufficient information to calculate the marginal cost of the 100th unit.
False
In general, average total cost is low when a small amount of output is produced because average fixed cost is very low when only a small amount of output is produced.
False
In the long run, for a given firm, total costs are $40,000 if the firm produces 10,000 units. If the firm produces 15,000 units, then total costs are $63,000. If the firm produces 18,000 units, then total costs are $81,000. The firm is experiencing economies of scale as production rises from 10,000 units to 18,000 units.
False
In the long run, variable inputs become fixed variable inputs, therefore, in the long run, the size of the factory is fixed.
False
Long-run average total cost curves are often U-shaped because of increasing specialization of workers at high levels of production and increasing coordination problems at low levels of production.
False
Profit is defined as price minus average total cost.
False
A business produces and sells specialty pies. Last year, the firm produced 20,000 pies and sold each pie for $7. In producing the 20,000 pies, it incurred variable costs of $95,000 and a total cost of $128,000. As a result, the firm's economic profit for the year was less than $14,500 but more than $8,500.
True
As the quantity produced increases, fixed cost remains constant, but, average fixed cost decreases.
True
At Patty's Cakes, the total cost of producing 6,000 cakes is $39,000. Variable costs of producing 6,000 cakes equal $30,000. At Patty's Cakes, the average fixed cost of the 6,000th cake is $1.50.
True
Average total cost is the cost of a typical unit of output if total cost is divided evenly over all the units produced.
True
Carla's Car Wash has average variable costs of $4 and average fixed costs of $3 when it produces 1,000 units of output (car washes). If the firm produces 1,000 units, then the firm's total cost is $7,000.
True
Economists normally assume that the goal of a business is to make profit as large as possible even if it means collecting less revenue or increasing costs.
True
If marginal cost is rising, then it is likely that marginal product is decreasing because the additional input costs are spread over fewer units of output.
True
If the firm's long run average total cost curve is horizontal, then the firm is experiencing constant returns to scale.
True
If you know the average variable cost of 50 units and the average variable cost of 51 units then you have sufficient information to calculate the marginal cost of the 51st unit.
True
In a widget factory, the producer is able to produce 40 widgets per day when she hires two workers. The producer is able to produce 70 widgets per day when she hires three workers. If diminishing marginal product occurs with the fourth worker then the producer is able to produce less than 100 widgets per day when she hires four workers.
True
In the calculation of profits, economists include both implicit and explicit costs but accountants only include explicit costs.
True
In the short run total costs include both fixed costs and variable costs. Rent paid on the factory that produces wooden tables is a fixed cost and the cost of the wood to make the tables is a variable cost of production.
True