ECON 212 CH 9

A ______ is a relatively rare market situation in which average total cost is minimized when only one firm produces the good.

Natural monopoly

Average Product of Labor

Quantity/Labor (number of workers)

Average Variable Cost (AVC)

TVC/output

Marginal Product (MP)

The extra output or added product associated with adding a unit of a variable resource

What is the total revenue if the economic profit is $24k and the economic costs are $96k?

$120k

What is average total cost if total cost is $100, variable costs are $75, fixed costs are $25, and output is 25?

$4; Average total cost is total cost divided by output or $4 computed as $100 divided by 25

Suppose at an output level of 150 units a firm's average fixed cost is $25 and average variable cost is $50. Then the average total cost of the firm is _________

$75; average fixed cost + average variable cost

Economies of scale explain the downward-sloping part of the ______ curve.

long-run average total costs

One explanation for the U-shaped average variable cost curve is that greater __________ yields more efficiency and variable cost per unit of output declines

specialization

What does the long-run average-total-cost curve show?

the lowest average total cost at which any output level can be produced.

Explicit Costs

the monetary payments a firm makes to purchase resources from others.

Implicit Costs

the opportunity costs of using the resources that it already owns to make the firm's own product rather than selling those resources to outsiders for cash

Economic cost

the payment that must be made to obtain and retain the services of a resource

Total product (TP)

the total quantity, or total output, of a particular good or service produced

Short run (Fixed Plant)

a period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the plant's current capacity is used

Average Total Cost ( ATC)

Total cost/ output or Adding AFC and AVC

True or false: In an industry with an extended range of constant returns to scale, firms of varying sizes can coexist and be equally profitable.

True

In microeconomics , the long run is also known as which of the following?

Variable Plant

Which of the following worker productivity factors often lead to diseconomies of scale?

Worker alienation and increased opportunities to shirk and avoid work

Learning by doing contributes to a firm's ______.

economies of scale

Accounting profit is what remains after a firm has paid its ___________ costs.

explicit

_______ costs are the monetary payments a firm makes to purchase resources from others.

explicit

How is total cost calculated?

fixed costs + variable costs OR total cost divided by output

Variable costs change with the level of ______

output

What happens to fixed costs when the level of production output reaches zero?

They remain unchanged

When is marginal cost at its minimum?

When marginal product is at its maximum

Suppose at an output level of 150 units a firm's average fixed cost is $25 and average variable cost is $50. Then the average total cost of the firm is ______.

$75; average total cost equals average fixed cost plus average variable cost.

Which of the following statements explain why the average variable cost curve is u-shaped?

1) As output rises from the initial very low levels, greater specialization occurs, and average variable cost declines. 2) At low levels of output, production is relatively inefficient and costly.

Which of the following are examples of labor specialization?

1) Assigning each worker one task instead of five or six 2) Hiring more workers in order to subdivide tasks.

Which of the following sets of values are necessary to compute average total cost? (ATC)

1) Average fixed cost and average variable cost 2) Total variable cost, total fixed cost, and output 3) total cost and output

What are the components of plant capacity?

1) Size of the building 2) The amount of machinery and equipment 3) Other Capital resources

Which of the following are examples of a long run adjustment period?

1) The two days it takes a t-shirt maker to add sewing machines and silk-screen printers. 2) The three years it takes an oil refining company to build a new plant.

Which of the following are examples of variable costs?

1)Payments for materials 2) Payments for fuel 3) Payments for power 4) Payments for transportation 5) Payments for labor

What is the average fixed cost if the average total cost is $100 and the average variable cost is $75?

25; The ATC is AFC + AVC So, the AFC would be found by subtracting ATC - AVC

What is average total cost if total cost is $100, variable costs are $75, fixed costs are $25, and output is 25?

4; Reason: Average total cost is total cost divided by output or $4 computed as $100 divided by 25.

With economies of scale, a 10% increase in all resources that causes a 20% increase in output results in which of the following?

A decline in ATC

Which of the following illustrates constant returns to scale?

A firm's 10% increase in given inputs, causing a proportionate 10% increase in output.

Which of the following is true of average fixed cost when output increases?

AFC must decline as output increases

What is the effect of an increase in the price of labor on the ATC, AVC, and MC curves?

ATC, AVC and MC will rise and the curve will shift upward. AFC will remain in place because fixed costs do not change.

What is meant by the phrase "spreading the overhead"?

As production increases, average fixed cost declines.

Where does the marginal-cost curve intersect the average-total-cost curve?

At the minimum point of average total cost

An increase in the price of labor has no effect on which cost curve?

Average fixed cost

What happens to average product when marginal product exceeds it?

Average product continues to rise.

How can a business manager control variable costs in the short run?

By altering levels of production

How is marginal cost calculated?

Change in total cost/ change in output

Marginal Cost

Change in total cost/change in output Change in output = 24-10= 14 CHange in total cost = ($400 + 2*45) - ( $400 + 1*45) MC = $45/14 = $3.21

Which of the following industries highlight the pattern of declining long-run average total costs?

Computer microchip Automobile Aluminum

What is the primary cause of diseconomies of scale?

Difficulty of efficiently controlling and coordinating a firm's operations at a large scale producer.

Fixed costs

Do not vary with changes in output; any cost that in total does not change when the firm changes its output.

By using economies of scale, successful start-up firms are able to shift their short-run cost curves in which directions?

Downward and to the right

What happens to marginal product when total product is increasing at an increasing rate?

Marginal product is rising

What is another term for economies of scale?

Economies of mass production

The U-shape of the long-run average-total-cost curve results from which of the following?

Economies of scale and diseconomies of sale

True or false: Important determinants of an industry's structure are economies of scale and revenue.

False

__________ costs are part of the simple existence of a firm's plant and must be paid even when output is zero.

Fixed

Average Fixed Cost (AFC)

Found by dividing total fixed cost (TFC) by that amount of output; AFC = TFC/Q

Why does the law of diminishing returns not account for the U-shape of the long-run average-total-cost curve?

In the long run all sources and inputs are variable.

What happens to average product as additional units of labor are added to a fixed plant?

It increases, reaches a maximum, and then decreases.

A firm grows from one to three plants. As a result, the firm's sales increase, leading to greater marketing expertise. This is an example of which of the following?

Learning by doing

A planning curve is another term for which of the following?

Long run average total-cost-curve

By expanding the size of its operations, a growing firm is able to experience economies of scale to do which of the following?

Lower its average total costs

Which of the following result from managerial specialization?

Lower unit costs; greater efficiency

If the change in total product is 10 units and the change in labor input is 1, what is marginal product?

Marginal Product = change in total product/ change in labor input. ANS: 10

A firm's decision whether to produce a few more or a few less units of output is a decision based on which of the following?

Marginal data

What happens to marginal product when total product is increasing but at a decreasing rate?

Marginal product is positive but falling.

Which resource requires the most time for a firm to adjust, given a change in demand?

Plant capacity

Long run (Variable Plant)

a period long enough for a firm to adjust the quantities of all the resources that it employs, including plant capacity

The Law of Diminishing Returns

The principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease.

Average total cost goes up when marginal cost is greater than ______.

average total cost

Which curve first falls and then rises?

average variable cost curve

Assuming technology and production techniques are fixed and cannot change, if beyond some point of production a firm experiences declining units of additional output with each additional unit of labor input, then the firm is experiencing the effects of the law of ______.

diminishing returns

The ______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use.

economic

A firm's decision about what output level to produce is typically a ______ decision.

marginal

If all workers are hired at the same price, the marginal cost of producing each extra unit of output falls provided the ______ of each additional worker is rising.

marginal product

In heavy industries, small firms are unlikely to realize ______ and will be unable to compete with large-scale producers.

minimum efficient scale

The lowest level of output at which a firm can minimize long-run average costs is called ______.

minimum efficient scale

When total product is at its maximum, marginal product is _________

zero