chapter 7

if total product for each of five units of labor is 10,20,30, and 34, respectively, the marginal product of the third unit is

4

total fixed cost divided by the level of output yields

average fixed costs per unit

the marginal product of labor is the

change in output from using one more unit of labor

as a firm expands into overseas markets, information problems and the complexity of operating within many varied cultures and economies may result in

diseconomies of scale

if a firm triples all of its inputs and its output doubles, it is said to be experiencing

diseconomies of scale

the long run is a period of time

during which all resources are variable

the short run is a period of time

during which at least one resource is fixed

the difference between a firm's total revenue and what must be paid to attract resources from their best alternative use is called

economic profit

if the money store earns a normal profit this year, its

economic profit is zero

generally, as a movie theater adds more screens its average costs fall. The movie theater can be said to experience

economies of scale

which of the following would not be considered a fixed cost for a law firm?

paper for the photocopy machine

a firm's long-run average cost curve is also called its

planning curve

when diminishing marginal returns set in, marginal product is

positive and decreasing

when a firm is experiencing diminishing marginal returns, marginal cost is

rising

for each size of plant a manufacturer could build, there is a different

short-run average total cost curve

Suppose a lawyer leaves his $50,000-a-year job and starts his own firm breeding pit bulls. In the first year, his accounting profit is $70,000. The lawyer finances his new business with $100,000 from his savings account, which had earned 10 percent interest. His economic profit is

$10,000

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his implicit costs?

$26,000

Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make lace doilies. If his revenue from the sale of these doilies is $50,000 and his materials cost $20,000, then his economic profit is

$5,000

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs?

$52,000

which of the following probably has the shortest long run?

a law firm

which of the following is a fixed cost of preparing meals?

a microwave oven

an implicit cost is

an opportunity cost

a variable cost is one that changes

as output changes

the law of diminishing marginal returns states that

as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.

the marginal cost curve intersects the average variable cost curve (AVC)

at the AVC curve's minimum point

if a firm shuts down in the short run and produces no output, its total cost will be

equal to total fixed cost

cash payments for steel to be used in production would be an example of

explicit costs

all other things constant, higher implicit cost results in lower accounting profit.

false

if the marginal product of an input is negative, the total product must also be negative.

false

The Toys-R-Danger-Us Toy Company can produce 500 water pistols for a total cost of $1,400. If the variable cost of producing 500 water pistols is $1,300, then

fixed cost must be $100

total cost is calculated as

fixed cost plus variable cost

the opportunity cost of a resource

includes both explicit and implicit cost

when diminishing marginal returns set in, total product

increases at a decreasing rate

in the range of increasing marginal returns, total product is

increasing at an increasing rate

in the short run, which of the following is likely to be a variable cost to a physician?

insurance forms

empirical studies of production suggest that the longest average cost curve

is U-shaped

as output expands, the slope of the average total cost curve

is first negative and then positive

opportunity cost usually

is involved in calculating economic profit

if General Motors is earning only a normal profit,

it is breaking even

which of the following is a fixed cost of driving a car?

license plates

which of the following is true in the short run at the output level where average cost is at its minimum?

marginal cost equals average total cost

which of the following statements is true? If the marginal product of labor diminishes,

marginal cost rises

to maximize profit in the long run, a firm must

minimize the cost of producing any given amount of output

if General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

the firm is experiencing diseconomies of scale

bart operates a lemonade stand in front of his house. His father works at the Springfield Nuclear Power plant. Which of the following is most likely to be true?

the long run is longer for the power plant than it is for the lemonade stand

which of the following is not an explicit cost?

the value of a firm owner's time

zipco's accounting profit is equal to its

total revenue minus explicit costs

economic profit is defined as

total revenue minus what must be paid to resources to attract them from their best alternative use

if all my savings are invested in my consulting company, an increase in the interest rate increases my implicit costs

true

in the long run, all inputs are variable

true

in the long run, all of a firm's inputs are variable

true

marginal cost indicates how much total cost increases if one more unit is produced or how much total cost drops if production declines by one unit

true

when marginal product is negative, the slope of the total product curve must be negative

true

on a graph of production costs, the vertical distance between the fixed cost curve and the total cost curve at a specific quantity represents

variable cost

the length of time that represents the long run

varies from industry to industry

the law of diminishing marginal returns is first evident in the following table

when the third unit of labor is added