Chapter 8 micro

As a firm hires more labor and each worker is able to specialize, what happens to each additional worker's marginal productivity? a. It increases at first, then decreases. b. It increases continuously. c. It decreases continuously. d. It decreases at first, then increases. e. It remains constant, no matter how much labor is hired.

a. It increases at first, then decreases.

STUDY GUIDE

a. We cannot determine the firm's level of profit because we do not know about its revenues.

Where would we find a firm's minimum efficient scale of production? a. at the lowest point on its long-run average total cost curve b. at the highest point on its long-run average total cost curve c. in the middle of its long-run average total cost curve d. at the highest point on its long-run average fixed cost curve e. in the middle of its long-run average variable cost curve

a. at the lowest point on its long-run average total cost curve

STUDY GUIDE The gap between the average total cost (ATC) and average variable cost (AVC) curves represents: a. average fixed cost. b. total fixed cost. c. average variable cost. d. average total cost. e. total variable cost.

a. average fixed cost.

A firm's accounting profit is always greater than its economic profit because: a. economic profit considers implicit costs, which accounting profit does not. b. accounting profit considers explicit costs, which economic profit does not. c. economic profit is always zero, no matter what kind of firm it is. d. accounting profit considers implicit costs, which economic profit does not. e. accounting profit is always positive, no matter what kind of firm it is.

a. economic profit considers implicit costs, which accounting profit does not.

If a firm's average total costs decrease as it increases its scale of production, the firm is experiencing: a. economies of scale. b. diseconomies of scale. c. increasing returns from specialization. d. diminishing marginal product. e. constant returns to scale.

a. economies of scale

The change in total output divided by the change in input is known as: a. marginal product. b. marginal cost. c. specialization. d. total product. e. marginal profit.

a. marginal product.

In economics, we assume that firms make decisions in order to: a. maximize profit. b. minimize revenues. c. evade taxes. d. lobby officials. e. protect the environment.

a. maximize profit

A firm's short-run cost curves show us: a. the lowest-cost level of output. b. the highest-profit level of output. c. what will happen if the firm doubles its capital. d. how many other firms are in the industry. e. how many employees the firm has.

a. the lowest-cost level of output.

Implicit costs are: a. the opportunity cost of the means of production. b. always paid out of pocket. c. never greater than explicit costs. d. always greater than explicit costs. e. not measured in terms of dollars.

a. the opportunity cost of the means of production.

Marginal product is the change in: a. total output divided by the change in input. b. total output plus the change in input. c. total output minus the change in input. d. total output times the change in input. e. input divided by the change in total output.

a. total output divided by the change in input.

Accounting profit is equal to: a. total revenue minus explicit costs. b. total revenue minus implicit costs. c. explicit costs plus implicit costs. d. explicit costs minus implicit costs. e. total revenue minus implicit costs and explicit costs.

a. total revenue minus explicit costs.

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were: a. $100,000. b. $35,000. c. $60,000. d. $66,000. e. $72,000.

b. $35,000.

When the average variable cost curve is upward-sloping, what must be true about the marginal cost curve? a. It is U-shaped. b. It is above the average variable cost curve. c. It is upward-sloping. d. It is below the average variable cost curve. e. It is a straight line.

b. It is above the average variable cost curve.

A firm's economic profit is always less than its accounting profit because: a. accounting profit considers explicit costs, which economic profit does not. b. economic profit considers implicit costs, which accounting profit does not. c. economic profit is always zero, no matter what kind of firm it is. d. accounting profit considers implicit costs, which economic profit does not. e. accounting profit is always positive, no matter what kind of firm it is.

b. economic profit considers implicit costs, which accounting profit does not.

The change in total cost given a change in output is also known as: a. differential cost. b. marginal cost. c. average cost. d. short-run cost. e. long-run cost.

b. marginal cost.

The full set of short-run cost curves for a firm tells us: a. the profit-maximizing level of output. b. the cost-minimizing level of output. c. how many other firms are competing with that firm. d. how many employees the firm has hired. e. whether the firm will experience economies of scale.

b. the cost-minimizing level of output.

STUDY GUIDE If the firm expanded its scale of production and found that its average costs decreased, which of the curves would reflect this situation? a. LRATC2 and LRATC3 b. LRATC2 c. LRATC1 d. LRATC3 e. LRATC1 and LRATC2

c. LRATC1

STUDY GUIDE The average total cost of production is minimized at what level of output? a. Q5 b. Q1 c. Q4 d. Q3 e. Q2

c. Q4

Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that: a. they are more conservative than accountants, who consider only accounting costs. b. most businesses forget to pay their implicit costs. c. a business must cover its opportunity costs as well as its out-of-pocket expenses to be truly profitable. d. implicit costs are typically far larger than explicit costs. e. implicit costs include expenses like taxes and fees to the government.

c. a business must cover its opportunity costs as well as its out-of-pocket expenses to be truly profitable.

STUDY GUIDE If the firm depicted in the graph had to pay higher rent to its landlord, we would expect its _________ curve to shift __________. a. average total cost (ATC); down b. average variable cost (AVC); down c. average total cost (ATC); up d. marginal cost (MC); up e. average variable cost (AVC); up

c. average total cost (ATC); up

When firms grow larger, they sometimes acquire more market power, meaning that they have greater ability to negotiate lower prices with their suppliers. This ability to negotiate lower prices with their suppliers leads to: a. diseconomies of scale. b. diminishing marginal returns. c. economies of scale. d. constant returns to scale. e. increasing marginal returns.

c. economies of scale.

Accountants consider only explicit costs when measuring accounting profit. The reason that they ignore implicit costs is that: a. implicit costs are typically very small. b. explicit costs are always greater than implicit costs. c. implicit costs are not out-of-pocket expenses. d. implicit costs are tax deductible. e. implicit costs cannot be measured in terms of dollars.

c. implicit costs are not out-of-pocket expenses.

If workers are unable to specialize and become more productive as more labor is hired, the amount of total output produced: a. increases at an increasing rate. b. increases at a constant rate. c. increases at a decreasing rate. d. decreases at an increasing rate. e. decreases at a constant rate.

c. increases at a decreasing rate.

It is important for a firm to know its minimum efficient scale of production because that is where: a. it faces the least amount of competition. b. its tax burden will be lowest. c. long-run costs are minimized. d. long-run average total cost is greatest. e. it turns into a monopoly.

c. long-run costs are minimized.

When the average total cost curve is at its minimum, we know that the: a. average variable cost curve intersects the average total cost curve. b. average variable cost curve is above the average total cost curve. c. marginal cost curve intersects the average total cost curve. d. marginal cost curve is above the average total cost curve. e. average fixed cost curve is above the marginal cost curve.

c. marginal cost curve intersects the average total cost curve.

If the marginal cost curve is U-shaped: a. there are no productivity gains from specialization, only diminishing marginal product. b. average fixed costs are continually decreasing. c. there are productivity gains from specialization before diminishing marginal product sets in. d. the average total cost curve is continually upward-sloping. e. the average variable cost curve is a straight line.

c. there are productivity gains from specialization before diminishing marginal product sets in.

Which of the following is the best example of a variable cost in the short run? a. rent for an office b. rent for a restaurant c. wages for employees d. debt payments for a loan e. rent for factory space

c. wages for employees

When the average total cost curve is downward-sloping, what must be true about the marginal cost curve? a. It is U-shaped. b. It is a straight line. c. It is upward-sloping. d. It is below the average total cost curve. e. It is above the average total cost curve.

d. It is below the average total cost curve.

Should a firm always produce the level of output where marginal cost is lowest? a. Yes. That is the level of output where costs are lowest. b. No. That is the level of output where employees are most efficient. c. No. Firms should produce where marginal cost equals average variable cost. d. No. That might be the best choice, but it depends on the firm's profits. e. Yes. Any other level of output will have higher marginal cost.

d. No. That might be the best choice, but it depends on the firm's profits.

STUDY GUIDE The average total cost (ATC) and average variable cost (AVC) converge as the level of output produced increases because: a. the firm is able to purchase more capital and exploit economies of scale. b. the firm experiences gains in productivity from employee specialization. c. average total cost decreases as output increases. d. average fixed cost decreases as output increases. e. the firm is able to drive its competitors out of business by lowering its price

d. average fixed cost decreases as output increases.

In the short run, average total costs and average variable costs converge as output increases because: a. marginal cost is below average total cost. b. marginal cost is below average fixed cost. c. average fixed costs continually increase. d. average fixed costs continually decrease. e. total cost continually increases.

d. average fixed costs continually decrease.

In the accompanying table, diminishing marginal product begins after the: Input Total Product 0 0 1 10 2 35 3 70 4 120 5 165 6 175 7 170 8 155 a. first unit of input. b. second unit of input. c. seventh unit of input. d. fourth unit of input. e. sixth unit of input.

d. fourth unit of input.

In the short run, the cost of ________ is variable, whereas the cost of ________ is fixed. a. capital; labor b. electricity; wages c. capital; raw materials d. labor; capital e. raw materials; labor

d. labor; capital

Total revenue minus total cost is equal to: a. producer surplus. b. dividends. c. consumer surplus. d. profit. e. retained earnings.

d. profit.

By looking at the full set of short-run cost curves for a firm, we can determine: a. the profit-maximizing level of output. b. the optimal number of employees to hire. c. what will happen if the firm increases its capital. d. the level of output with the cost-minimizing level of output. e. what will happen if the firm decreases its capital.

d. the level of output with the cost-minimizing level of output.

Economic profit is equal to: a. total revenue minus explicit costs. b. total revenue minus implicit costs. c. explicit costs plus implicit costs. d. total revenue minus implicit costs and explicit costs. e. explicit costs minus implicit costs.

d. total revenue minus implicit costs and explicit costs.

An explicit cost for a business that manufactures bicycles would be the: a. value of the products that the firm's employees could produce at another company. b. salary that the owner of the business could earn elsewhere. c. goods and services provided by the government with the taxes the firm pays. d. wages paid to employees. e. various products that could be made with the steel used to make bicycles.

d. wages paid to employees

The three primary factors of production are: a. revenue, profits, and costs. b. price, quantity, and profits. c. capital, interest, and savings. d. labor, wages, and training. e. land, labor, and capital.

e. land, labor, and capital.

In the short run, average total costs at first decrease and then increase as more output is produced because: a. marginal cost is at first greater than average total costs, then falls below it. b. average fixed costs continually decrease. c. average variable costs at first decrease and then increase at the same level of output. d. total cost continually increases. e. marginal cost is at first less than average total costs, then rises above it.

e. marginal cost is at first less than average total costs, then rises above it.

Which of the following can we learn by looking at a firm's short-run costs? a. the profit-maximizing level of output b. whether the firm will experience economies of scale c. the optimal number of employees to hire d. whether the firm is earning economic profit e. the cost-minimizing level of output

e. the cost-minimizing level of output