Econ 2106-Chapter 14
The long run average cost curve
Shows the lowest average cost facing a firm as it increasing output changing both its plant and labor force
Average total cost is equal to
TC+quantity & AFC+AVC
Moving along the total product curve, which of the following is held constant?
Technology
The law of decreasing returns applies to
changes in variable input with a given quantity of fixed inputs
Jay set up his hotdog stand near the business district. His total variable cost includes the
cost of hotdogs and condiments
From a firm's viewpoint, opportunity cost is the
cost the firm must pay for the factors of production it employs to attract them from their best alternative use
Which of the following is a fixed cost for ACME manufacturing?
the annual fire and theft insurance premiums
If the average product of labor curve is rising,
the average variable cost curve is falling
The marginal product of labor is
the change in total product divided by the increase in labor
For a business, opportunity cost measures
the cost of all the factors of production the firm employs
Total cost includes
the cost of both variable and fixed resources
The table above shows a total product schedule. Suppose that labor costs $20 per worker and fixed costs are $60. The average total cost of producing 80 units equals ____ per unit
$1.75
Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. these are her only cost. When Anna as a staff of 6 workers, her average total cost equals
$10.00
Anna owns a dog grooming salon in Brunswick, Georgia. The above table as Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only cost. When Anna has a staff of 2 workers, her average total cost equals
$12.00
Suppose a firm's total revenue is $1,000,000. The firm has incurred explicit cost of $750,000. There is also $50,000 of forgone wages by the owner $10,000 of forgone interest $3,000 worth of economic depreciation, and $20,000 worth of normal profit. What is the firm's economic profit?
$167,000
To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The marginal cost of the 11th shirt is equal to
$19
Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her total fixed cost is equal to
$20
The table above gives costs at Jan's Bike shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total fixed cost of producing 64 bikes?
$200
The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the table above. Based on the table, the marginal cost of producing the fourth gallon of ice cream is
$3
Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her marginal cost of producing the 5th pizza is
$8
Bill is an economics professor who earns $40,000 teaching but decides to leave and fulfill his dream of catering barbecues. During his first year of barbecuing, he earned total revenue of $60,000. He spend $30,000 on food and supplies. He also paid his wife $10,000 to help serve food. The normal profit for an entrepreneur running a BBQ business is $3,000. He also rented an industrial grill/fry truck for $12,000. An accountant would conclude that Bill's profit was
$8,000
To produce 10 shirts, the total cost is $80. To produce 11 shirts, the total cost is $99. The average total cost of the 11th shirt is equal to
$9
Based on the figure above, the firm's marginal curve slopes upward at levels of output between ____ and the firm's average product curve slopes upward at levels of output between ____
0 and 4.0 0 and 7.0
Which of the following are correct statements about implicit and explicit costs? 1. Normal profit is an implicit cost 2. Economic depreciation is an explicit cost 3. Wages are an explicit cost
1 & 3 Normal profit is an implicit cost Wages are an explicit cost
Which of the following is an implicit cost in Jim's business venture? 1. The salary Jim could have earned at another job 2. The interest Jim must pay on the loan he incurred to help open his business 3. The interest Jim lost when he used his savings to help open his business
1 & 3 -The salary Jim could have earned at another job -The interest Jim lost when he used his savings to help open his business
Which of the following variables do you need to know to calculate marginal cost? 1. change in total cost 2. marginal product of labor 3. change in quantity of labor used 4. change in output
1 & 4 change in total cost change in output
Jill runs a factory that makes lie detectors in Little Rock, Arkansas. This month, Jill's 34 workers produced 690 machines. Suppose Jill adds one more worker and, as a result, her factory's output increases to 700. Jill's marginal product of labor from the last worker hired equals
10
If 10 workers can produce 1,500 units of output and 11 workers can produce 1,600 units of output, then the average product of 11 workers is
145.5 units
Which of the following is an implicit cost? 1. wages paid to workers 2. the normal profit 3. the electric bill
2 only
If 25 workers can pick 100 flats of strawberries per hour, then the average product is
4 flats per hour
The table above shoes the total product schedule for The X Firm. Increasing marginal returns occur until the _____ worker because ______
4th; the marginal product of the 4th worker exceeds the 3rd worker, but not the 5th worker
The table above shows the total product schedule for The X Firm. Decreasing marginal return occur with the _____ worker because___
5th; the marginal product of labor for the 5th worker is less than the marginal product of the 4th worker
The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When the ____ worker is hired, the average product of labor ______ the marginal product of labor.
6th exceeds
Which of the following is true in the long run?
All cost are variable
Which of the points show efficient production points?
All points on the TP curve
______ cost is defined as a cost of production that does not entail a direct money payment
An implicit
Dr. Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic. His revenues for the first year are $550,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous cost. The normal profit from running his business is $20,000.
His economic profit is zero
Which of the following statements is true?
In the long run, all cost are variable cost
If we know the amount of total cost, average total cost, average variable cost, and marginal cost for each level of output, how can we find the level of output where the marginal product is the greatest?
It is the output for which the marginal cost is minimized
Which of the following is true?
Profit as calculated by accountants and economic profit are not necessarily equal
Which of the following statements correctly describes a total product curve?
The curve separates attainable outputs from unattainable outputs
A firm decreases its scale of operation and discovers that its long-run average cost decrease. Which of the following does this indicate?
The firm's scale initially was so large that it experienced diseconomies of scale
Which of the following is correct?
The long run is the time frame in which the quantities of all resources can be varied
Which of the following is an explicit cost in Jim's business venture?
The wages Jim pays his workers
Consider a Wal-Mart supercenter and a 7-Eleven store. In the long run,
Wal-Mart or 7-Eleven may have economies of scale depending on how many customers are served
Which of the following is correct about marginal and average products?
When the marginal product exceeds the average product, the average product must be increasing
Total fixed cost is the cost of
a firm's fixed factors of production
Diseconomies of scale is
a long run phenomenon
In the long run, constant returns to scale necessarily occur when the firm increases its production and the firm's
average total cost does not change
Decreasing marginal returns
affect all firms, but at different production levels
The cost that a firm pays in money to hire a resource is referred to as ______ cost
an explicit
A cost incurred in the production of a good or service and for which the firm does not need to make a direct monetary payment, is referred to as ____ cost.
an implicit
Increasing marginal returns to labor
are the result of specialization and division of labor in the production process
The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When the 4th worker is hired, the _______ product of labor equals ______ lawns mowed.
average 3.75
Based on the figure above, curve C is the firm's
average total cost curve
The portion of the long-run average cost curve in which economies of scale are experienced shows that as output increases, the
average total cost decreases
Based on the figure above, curve B is the firm's
average variable cost curve
The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When does the average product of labor equal the marginal product of labor?
between the 6th and 7th worker
In the long run, the firm ____ change the number of workers it employs and ____ change the size of its plant.
can can
Diseconomies of scale can occur as a result of which of the following?
management difficulties as the firm increases its size
In a graph of a typical firm's AFC, ATC, and AVC curves, the
distance between the ATC curve and the AVC curve equals the AFC
The opportunity cost of owning and using a firm's capital is defined as the capital's
economic depreciation
If a firm increases its output and its average cost decreases, the firm is experiencing which of the following?
economies of scale
When a firm's long-run average total cost falls as its output increases, the firm is experiencing
economies of scale
In economics, a "normal profit" is the return to
entrepreneurship
Economies of scale can occur as a result of which of the following?
greater specialization of labor and capital as the firm increases its size
The short-run average total cost, average variable cost, and marginal cost curves are all U-shaped because of
increasing and then decreasing marginal returns as more labor is hired
As output increases, average total cost decreases
initially and then starts to increase
The average fixed cost curve
is always negatively sloped
When the average product is at its maximum,
it is equal to the marginal product
To produce more output in the short run, a firm must employ more of
its variable resources
The long run is a time period that is
long enough to change the size of the firm's plant and all other inputs
As output increases, economies of scale occur when the
long-run average cost decreases
Bill is economics professor who earns $37,000 teaching but decides to leave and fulfill his dream of catering BBQs. During his year of BBQing, he earned a total revenue of $60,000. He spend $30,000 on food and supplies. He also paid his wife $10,000 to help serve food. The normal profit for an entrepreneur running a BBQ business is $3,000. Bill also rented an industrial grill/fry truck for $12,000. Bill has an economic
loss of -$32,000
A firm's long-run average cost curve shows the ___ average cost at which it is possible to produce each output when the firm has had ____ time to change both its labor force and its plant
lowest sufficient
When the marginal product is increasing as the quantity increases, then as the quantity increases the
marginal cost is decreasing
If average variable cost increases as output increases, then
marginal cost must be greater than average variable cost
Increasing marginal returns occur when the
marginal product of an additional worker exceeds the marginal product of the previous worker
The table above shoes a total product schedule. Suppose that labor cost $20/worker and fixed costs are $60. The total variable cost of producing 80 units equals
more than $70 and less than $90
The return to entrepreneurship is known as
normal profit
Economic profit equals total revenue minus total
opportunity cost
A normal profit is
part of a firm's opportunity cost
The total variable cost curve ________ because _________ as output increases
slopes upward variable cost increases
The short run is a time period during which
some of the firm's resources are fixed
The main source of economics of scale is
specialization
Which of the following contributes to increasing marginal returns?
specialization of labor
A normal profit is defined as
the return to entrepreneurship
The short run is
the time frame in which some resources are fixed
An increase in the price of labor (a variable resource) shifts
the variable cost curves upward but leaves the fixed cost curves unchanged
One of the major reasons for the U-shaped average total cost curve is the fact that
there eventually are decreasing returns from labor as more workers are employed
A firm's fundamental goal is
to maximize profit
The cost that does not change as output changes is
total fixed cost
Based on the figure above, curve C is the firm's
total fixed cost curve
The marginal product of labor is the change in
total output from employing one more worker
Average product is equal to
total product + quantity of labor
Total cost is equal to the sum of
total variable cost and total fixed cost
Based on the figure above, curve B is the firm's
total variable cost curve
Average variable cost equals
total variable cost divided by output
If a firm does not produce any output, its
total variable cost must be zero
The law of decreasing returns states that as a firm uses more of a
variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases