ECON 212 CH. 7

Payments to nonowners of a firm for their resources are called

explicit costs

The _ is a time period during which a firm cannot alter some input such as its factory size.

short run

An economist left his $100,000-a-year teaching position to work full-time in his own consulting business. In the first year, he had total revenue of $200,000 and business expenses of $150,000. He made a (an): a. implicit profit. b. economic loss. c. economic profit. d. accounting loss but not an economic loss. e. zero economic profit.

B

If a firm enlarges its factory size and realizes higher average (per unit) costs of production then: a. it has experienced economies of scale. b. it has experienced diseconomies of scale. c. it has experienced constant returns to scale. d. the long-run average cost curve slopes downward. e. the long-run average cost curve shifts upward.

B

T F Suppose a firm earns an accounting profit. This means the firm also earns a positive economic profit.

False

T F All of a firm's inputs are considered to be variable in the long run.

True

T F If the total variable cost of producing 5 units of output is 10 and the total variable cost of producing 6 units is 15, the marginal cost of producing a sixth unit is 5.

True

T F In the long run, all costs are considered variable.

True

T F Marginal cost is calculated by dividing the change in total cost by the change in total output.

True

T F Suppose Joe Rich owns his own company and does not pay himself a salary. This means the salary he could have earned in alternative employment is considered an implicit cost for the firm.

True

__ is the total fixed cost divided by the quantity of output produced.

average fixed cost

______ is the sum of average fixed cost and average variable cost.

average total cost

_____ is a situation in which the long-run average cost curve does not change as the firm increases output.

constant returns to scale

The average ____ cost is the total fixed cost divided by the quantity of output produced.

fixed

A resource for which the quantity cannot change.

fixed input

Any resource for which the quantity cannot change during the period of time under consideration is called

fixed input

__ costs are opportunity costs of using resources owned by the firm.

implicit

The opportunity cost of resources owned by the firm are called

implicit costs

A period of time so long that all inputs are variable is called a (an) .

long run

The ____ traces the lowest cost per unit at which a firm can produce any level of output when the firm can build any desired plant size.

long-run average cost curve

The average ____ cost is the total cost divided by the quantity of output produced.

total

The sum of total fixed cost and total variable cost.

total cost

If the units of variable input in a production process are 1, 2, 3, 4, and 5, and the corresponding total outputs are 30, 34, 37, 39, and 40, respectively. The marginal product of the fourth unit is: a. 2. b. 1. c. 37. d. 39.

A

The lowest point on the average total cost curve is: a. where it intersects the marginal cost curve. b. where it intersects the average variable cost curve. c. where it intersects the average fixed cost curve. d. where marginal product is maximized.

A

A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of land for this farm is: a. 6,000 bushels per acre per year. b. 5,000 bushels per acre per year. c. 1,000 bushels per acre per year. d. 11,000 bushels per acre per year.

C

Assume both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the average variable cost curve, marginal cost must be: a. greater than average variable cost. b. less than average variable cost. c. equal to average variable cost. d. at its minimum.

C

Normal profit is defined as a (an): a. implicit profit. b. opportunity profit. c. the minimum profit necessary to keep a firm in business. d. All of the answers above are correct.

C

Payments to nonowners of a firm are called: a. implicit costs. b. indirect costs. c. explicit costs. d. economic costs.

C

The ___ is the situation in which the marginal product of labor is greater than zero and declining as more labor is hired. a. law of demand. b. law of diminishing supply. c. law of diminishing returns. d. law of returns to scale.

C

Which of the following is true at the point where diminishing returns set in? a. Both marginal product and marginal cost are at a maximum. b. Both marginal product and marginal cost are at a minimum. c. Marginal product is at a maximum and marginal cost at a minimum. d. Marginal product is at a minimum and marginal cost at a maximum.

C

Which of the following statements is false? a. TC = TFC + TVC. b. AVC = ATC - AFC. c. AFC = TFC/Q. d. MC equals the change in ATC divided by the change in Q. e. ATC = TC/Q.

D

Which of the following statements is true? a. The law of diminishing returns states that beyond some point the marginal product of a variable resource continues to rise. b. The marginal product is the change in total output by adding one additional unit of a fixed input. c. Fixed costs are costs which vary with the output level. d. When marginal productivity of a variable input is falling then marginal costs of production must be rising. e. When marginal cost is below average cost, average cost rises; when marginal cost is above average cost, average cost falls.

D

Which of the following statements is true? a. Economic profit equals accounting profit minus implicit costs. b. The short run is any period of time in which there is at least one fixed input. c. A fixed input is any resource for which the quantity cannot change during the period under consideration. d. In the long run there are no fixed costs. e. All of the answers above are correct.

E

T F A firm's marginal product of labor curve slopes downward throughout its length.

False

T F Each short-run average total cost curve is tangent at its lowest point to the long-run average cost curve.

False

T F Economies of scale exist over all ranges of output for which short-run average total cost exceeds long-run average cost.

False

T F In the short-run, total fixed costs always exceed total variable costs.

False

Total variable cost divided by the quantity of output produced is called .

average variable cost

The law of ______ returns is the principle that beyond some point the marginal product decreases as additional units of a variable factor are added to a fixed factor.

diminishing

A situation in which the long-run average cost curve rises as the firm increases output is called

diseconomies of scale

________is equal to total revenue minus both explicit and implicit costs.

economic profit

When long-run average cost decreases as output increases, the firm experiences

economics of scale

________ costs are payments to nonowners of a firm for their resources.

explicit

After some level of output in the short run, each unit of the variable input yields smaller and smaller marginal product. This principle is called the

law of diminishing returns

The change in total cost when one unit is produced.

marginal cost

______ is the change in total cost associated with a change in one unit of output.

marginal cost

___ is the change in total output produced by adding one unit of a variable input, with all other inputs used being held constant.

marginal product

The rule that states when marginal cost is below average cost, average cost falls. When marginal cost is above average cost, average cost rises. When marginal cost equals average cost, average cost is at its minimum point is called the

marginal-average rule

____ is the minimum profit necessary to keep a firm in operation.

normal profit

Marginal _____ is the change in total output produced by adding one unit of a variable input, with all other inputs used being held constant.

product

A (an) __ is the relationship between output and inputs.

production function

Economic _____ is the total revenue minus explicit and implicit costs.

profit

A period of time in which at least one inut is fixed.

short run

The sum of total fixed cost and total variable cost at each level of output is called

total costs

___ includes costs, such as rent for office space, that cannot vary with the level of output.

total fixed cost

____ , such as wages, vary as the level of output varies.

total variable cost

The average _______ cost is the total variable cost divided by the quantity of output produced.

variable

Any resource for which the quantity can change during the period of time under consideration is called

variable input