ECON LS 12, HW 12A, HW 12B

The marginal cost is the ____ cost that will be incurred by producing one additional unit of ____.

1) additional 2) output

Explicit costs are

1) costs that include just about everything we typically think of as a cost. 2) costs that require a firm to spend money.

The minimum of the ATC cost curve occurs at a higher output level than the minimum of the average variable costs curve because the average ____ cost is lower than the average ____ cost and this pulls the average total cost down.

1) fixed 2) variable

From looking at a graph of the production function, you can see that the marginal product initially ____ when the first few workers are added; but then it begins to ____.

1) increases 2) decrease

The average variable cost curve has its shape because, initially, the first few employees demonstrate ____ marginal product causing the average variable cost curve to slope ____ but when the principle of diminishing marginal product kicks in, the curve slopes ____.

1) increasing 2) downward 3) upward

The ____-run cost curve can be thought of as consisting of points on various ____-run ATC's faced by firms of various sizes, operating at different scale.

1) long 2) short

When the ____ product crosses the ____ product curve, the average product curve starts to decrease.

1) marginal 2) average

The cost of a lease (or any input) is fixed in the ____ run, but not fixed in the ____ run.

1) short 2) long

Costs that change with the quantity of output produced are called ____ costs, whereas those that do not change with the quantity of output produced are called ____ costs.

1) variable 2) fixed

Opportunity costs =

Explicit costs + Implicit costs

Total Cost =

Fixed Cost + Variable Cost

The efficient scale of production is when:

Long run average total cost is minimized.

Long-run Average Total Cost =

Long-run Total Cost/Output

If a firm has economies of scale, increasing the quantity produced will lead to:

Lower long run average costs.

____ is the difference between total revenue and total cost.

Profit

Which of the following is a true statement about the long run and the short run in economics?

The long run is not a specific period of time, as it will be different for different firms. NOT: The long run is not a specific period of time, as it will be different for different firms. OR Costs that are fixed in the short run will also be fixed in the long run. OR All inputs are variable in the short run.

Marginal Cost =

Total Cost (n) - Total Cost (n-1)

Average Cost =

Total Cost/Quantity

Average total cost

Total Costs/Quantity

Average total cost=

Total cost divided by quantity of output.

Accounting profit=

Total revenue - Explicit costs

Economic profit

Total revenue minus opportunity costs.

____ costs depend on the quantity of output produced.

Variable

Example of implicit costs:

Water and foregone interest on savings.

Consider a firm that increases its inputs by 15%. a. Outputs increase 15% b. Outputs increase by less than 15%. c. Outputs increase by greater than 15%.

a. Constant returns to scale b. Diseconomies of scale c. Economies of scale

Suppose Jump High produces trampolines in a rented space using purchased frames and materials. They also hire labor and buy advertising services from a marketing company for a flat annual fee. Their fixed costs include

advertising and rent.

When a firm faces constant returns to scale,

an increase in the quantity of output does not change the average total cost.

Economic profit is smaller than accounting profit because

economic profit includes explicit and implicit costs.

If a small firm finds that operating on a larger scale enables it to lower its average cost, then the firm is facing

economies of scale

When a firm cannot lower its average cost by either increasing or decreasing its scale, it is said to be operating at a(n) ____ scale.

efficient

Costs that require a firm to spend money are ____ costs.

explicit

The average ____ cost curve trends downward because production increases, the cost per unit of production decreases.

fixed

Average fixed cost=

fixed cost divided by quantity of output

Total costs =

fixed costs + variable costs.

If you use your saved up money as your start up capital, there is an implicit cost because you

give up interest you could have earned on the money in a savings account.

The marginal product of an employee is the

increase in the units of a product than can be produced by hiring another employee.

The slope of the total cost curve ____ because of the principle of diminishing marginal product.

increases

The marginal cost will eventually increase because the productivity of each unit of

input falls due to the principle of diminishing marginal product.

Because initially the first few employees have an increasing marginal product but eventually the principle of diminishing marginal product kicks in, the average variable cost curve

is U shaped.

The marginal cost curve

is the inverse of the marginal product curve.

The principle of diminishing ____ product states that the marginal product of an input decreases as the quantity of the input increases.

marginal

One cost faced by nearly all firms in the ____ cost of the money invested in starting up the business.

opportunity

When economists think about a firm's costs, they are thinking about

opportunity costs.

The marginal product of any input into the production process is the increase in ____ that is generated by an additional unit of the input.

output

A business still has to make a ____ to survive, even if it is driven partially by social and/or environmental factors.

profit

When people refer to the bottom line they are referring to the company's ____ which is shown on the bottom line in a company's income statement.

profit

The production function shows the relationship between the

quantity of inputs and the quantity of outputs.

Economies of scale, diseconomies of scale, and constant returns to scale describe the relationship between the

quantity of output and average total cost.

The marginal cost is

the change in total cost divided by the change in the quantity of output.

A period in which all inputs can be changed is called

the long run

A flat portion of an average total cost curve represents the

the various different levels of output at which the firm achieves constant returns to scale

The amount that a firm pays for all of the inputs that go into producing goods and services is the

total cost

The sum of all of its fixed and variable costs is a firm's

total cost.

The quantity sold multiplied by the price paid per unit is

total revenue

Because marginal product is represented by the slope of the total production curve,

when diminishing returns take effect, the total production curve levels out.

If a firm produces nothing then its variable cost is ____.

zero