Econ review 7-12 reading
Assume that wages are $20 per hour; at the current number of hours of labor employed, the marginal product of an hour of labor is 10 units of output. Labor is the only variable input. What will happen to marginal cost if you hire one more hour of labor and the marginal product of the next hour of labor employed increases to 15 units of output?
(1 hour x $20)/(10 units) = Marginal cost $2 per unit. if increased to 15 units per hour it will fall to $1.33 per unit ((1 hour x $20)/ 15 units)
What is the average score if the third student has an SAT score equal to 1000?
(1,300 + 1,300 + 1,000) / 3 = 1,200
Consider two students, each earning 1300 on the quantitative and verbal portions of the SAT. The average SAT score for our group of two is 1300, of course. (1300 + 1300)/2. Suppose we add one more student to the group and calculate the new average. What will the new average be if the third student has an SAT that is equal to 1300?
(1,300 + 1,300 + 1,300) / 3 = 1,300
What is the average scoreif the third student has an SAT score equal to 1600?
(1,300 + 1,300 + 1,600) / 3 = 1400
in the long run combination
(MP of each input/ price of that input)=(MP of every other input/ its price)
9.07 Calculate the economics losses for Firm 1 if they decide not to produce -$____.
10.0
9.09 Calculate the economic losses for Firm 2 if they decide to produce -$____.
100
9.10 Calculate the economic losses for Firm 2 if they decide to not produce -$____.
120
9.06 Calculate the economic losses for Firm 1 if they decide to produce -$____.
15.0
production function
A function showing the maximum output for each specific combination of inputs, given technology.
technological change
A shift in the production function, usually in the direction of a greater quantity of output at each level of input. Technological change may be the result of creation of new products, redesign of old products, or the creation of new methods of manufacturing.
If the goal is to produce 200 webpages each day for the foreseeable future, which size of office should the firm build, AC, AC, or AC?
AC1
total variable costs
For a given level of output, the costs (prices multiplied by the amounts of inputs) of the inputs that can be changed. These costs vary as output changes.
AC is at a minimum when
MC=AC
Total costs formula
TC=TFC + TVC
total fixed costs
The costs (prices multiplied by the amounts of inputs) of the inputs that are fixed. This is also the amount of cost when total product is zero. Total fixed costs are costs that do not vary as output changes.
Law of Diminishing Marginal Returns
The marginal product of an input will eventually decrease as more of that input is used. The law of diminishing marginal returns assumes that all other inputs remain constant.
See Figure 8.8. Which size should the firm choose if it believes that it will be producing 125 units of output per week? Which size should it be producing if wants to produce 200 units per week?
The size for 125 units per week is AC2 and the size for 200 units a week is AC3
average product
The total product divided by the number of units of a particular input used.
Working from the table, if Patricia is currently producing 450 web pages per month. If her landlord increases her rent such that her fixed costs rise from $5,000 per month to $6,000 per month, calculate her new _______. Variable cost? Total cost? Average cost? marginal cost?
VC- $12,000 TC= $18,000 AC= $40 MC= $30
If accounting profits equal $10 million for a firm and the owners could likely earn $7 million in a similar business, the firm's economic profit is ________. a $3 million b $7 million c $10 million d $13 million
a $3 million
In the short run, how will an increase in demand affect the output of a typical firm in a competitive market? a An increase in output b A decrease in output c No change in output d Cannot tell
a An increase in output
In the long-run, marginal cost will be average cost if the firm is experiencing economies of scale. a Below b Above c Equal to d None of the above. Marginal cost is a short-run concept.
a Below
The marginal product of an automobile assembly line worker is currently one automobile per month. The wage and benefits of that typical worker is currently $4,000 per month. A new robot will cost $20,000 per month and its marginal product is four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do? a Hire more labor and buy fewer robots b Hire less labor and buy more robots c Hire more labor and more robots d Change neither the current levels of labor or robots
a Hire more labor and buy fewer robots
An increase in the prices of an input will cause long-run average costs to . a Increase b Decrease c Not change. The input is fixed. d Either increase or decrease, depending upon whether variable inputs are substituted.
a Increase
Accounting profits at a firm's economic profit break-even point are ________. a Positive b Negative c Zero d Equal to the firm's total revenue
a Positive
A single firm in a perfectly competitive market is a _________. a Price-taker b Price-maker c Quantity-taker d Quality-maker
a Price-taker
long run
a time period long enough that all inputs can be changed(factors of production)
At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to _____. a-$16,000 b-$41,000 c-$16 d-$41,000,000
a- $16,000
If the quantity of an input is variable in the short run, its total cost will ______________ as output increases. a-Increase b-Decrease c-Stay the same d-Rise then fall
a- increase
An increase in technology will cause the total product function to ______________and average costs to ______________. a-Increase; decrease b-Not change; decrease c-Not change; not change d-Increase; not change e-Increase; increase
a-Increase; decrease
MP=AP when
average costs is at a minimum
In the case of an increase in demand, what will happen to the economic profits of the typical competitive firm? Economic profits will ________. a Not change b Increase c Decrease d Cannot tell
b Increase
In the long-run, what will diminishing marginal returns be? a Relevant if all inputs are changed b Relevant if one input is changed while the other input is held constant or reduced c Not be relevant, because all inputs can be changed d Apply if all resources are increased in portion to one another
b Relevant if one input is changed while the other input is held constant or reduced
Suppose a firm doubles its inputs in the long-run, and as a result, output doubles. Which of the following is true? a This firm is experiencing economies of scale. b This firm is experiencing constant returns to scale. c This firm is not using the lowest cost combination of capital and labor. d This firm is growing too fast and reducing profits.
b This firm is experiencing constant returns to scale.
Marcus has four employees. The four employees produce 55 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 60 floral arrangements in a day. The fifth employee's marginal product is __________. a-60 floral arrangements in a day b-5 floral arrangements in a day c-11 ¾ floral arrangements in a day d-12 floral arrangements in a day
b-5 floral arrangements in a day
What does diminishing marginal productivity mean? a-As you increase the amount of a variable input, its average product eventually gets smaller. b-As you increase the amount of a variable input, its marginal product eventually gets smaller. c-As you increase the amount of a fixed input, its marginal product eventually gets smaller. d-As you increase the amount of a variable input, total output eventually declines.
b-As you increase the amount of a variable input, its marginal product eventually gets smaller.
What are two of the reasons that average cost tends to have a "bowl" shape? a-Fixed costs tend to dominate high levels of output and variable costs tend to dominate low levels of output b-Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output c-Fixed costs and variable costs tend to dominate low levels of output d-Fixed costs and variable costs tend to dominate high levels of output
b-Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output
In the case of an increase in fixed costs, what will happen to the economic profits of the typical competitive firm? Economic profits will ________. a Not change b Increase c Decrease d Cannot tell
c Decrease
A long-run average cost curve that rises through all levels of possible outputs represents which effect? a The law of diminishing marginal returns b Economies of scale c Diseconomies of scale d None of the above
c Diseconomies of scale
Which of the following is a characteristic of perfect competition? a Differentiated products b A small number of firms competing c Easy entry for firms d None of the above
c Easy entry for firms
Why can't a single firm in a perfectly competitive industry influence the market price? a Its costs are too high b It is not allowed to advertise c Its production level is too small to affect the market d It is a price maker
c Its production level is too small to affect the market
What is the main source of diseconomies of scale? a Physical capital breaking more often with large output levels b Specialization of capital and labor c Limited ability to manage and coordinate larger amounts of inputs d Workers getting fatigued
c Limited ability to manage and coordinate larger amounts of inputs
Economies of scale happen when increases in output result in _________. a Increasing average costs b Constant average costs c Lower average costs d Lower total costs
c Lower average costs
Assume the following data. The marginal product of labor is 150 washed cars per day. The daily wage is $60. If the marginal product of machines that would wash cars is 200 per day and the rent for the machines is $80, what will the firm do? a Rent more machines, because their marginal products are higher b Hire more workers, because they cost less per day c Not change the number of machines or workers d Expand both the number of machines and workers
c Not change the number of machines or workers
Suppose an additional worker can handle an additional 10 orders per hour. That will cost $15 per hour. An additional telephone answering machine will handle an additional 20 calls per hour at a cost of $10 per hour. Which of the following is correct? a The firm should increase labor and decrease capital, because labor costs more per hour. b The firm should increase capital and decrease labor, because labor produces less per hour. c The firm should increase capital and decrease labor, because labor produces less per dollar spent. d The firm should increase labor and decrease capital, because labor produces less per dollar spent.
c The firm should increase capital and decrease labor, because labor produces less per dollar spent.
Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week she would have to spend $6,100 per week. The marginal cost per hat is ______. a-$6,100 b-$100 c-$20 d-$5
c- $20
The production of 12,000 candy bars per day requires 60 workers. The average product of each worker is ______________ candy bars per day. a-12,000 b-600 c-200 d-20
c-200
Assume that instead of the cost of the three computer work stations and space being $5,000 per month, it is $10,000 per month. Match the number of workers to the correct marginal cost. a-A = $3,000, B = $3,000, C = $3,000 b-A = $3,000, B = $1,500, C = $1,000 c-A = $30.00, B = $27.27, C = $23.08 d-A = $30.00, B = $13.64, C = $8.57
c-A = $30.00, B = $27.27, C = $23.08
In the short run, an increase in wages (the price of the variable input) will cause average cost to ______________ and marginal cost to ______________. a-Increase; decrease b-Not change; not change c-Increase; increase d-Decrease; decrease e-Decrease; increase
c-Increase; increase
A production function can best be described as which of the following? a-A graphical depiction of what can and cannot be produced with a given amount of inputs b-The quantity of inputs required to produce each unit of output in a given amount of time c-The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time d-The quantity of outputs created by a given quantity of inputs in a given amount of time
c-The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time
Currently, the marginal product of labor is 45 units per week. The average product of labor at the current level of output is 32 units per week. If the employer hires one more worker, the marginal product of labor will be 47 units per week. The average product of labor will ______________. a-Equal the marginal product of labor b-Fall c-Rise d-Stay the same
c-rise
marginal cost
change in total costs that results form increasing total product by one unit (change in TC/ change in quantity)
marginal product formula
change in total product/ change in variable product
marginal analysis
comparing the additional benefits resulting from decision with the marginal costs
In perfect competition, the demand curve for an individual's firm product is _________. a Downward sloping b Relatively elastic c Perfectly inelastic d Perfectly elastic
d Perfectly elastic
What are economic profits at a firm's break-even point? a Positive and equal to fixed costs b Positive and equal to opportunity costs c Negative d Zero
d Zero
The slope of a firm's production function will ______ as the amount of a variable input used increases if the input experiences diminishing marginal productivity. a-Not change b-Be indeterminate depending on the amount of the variable input used c-Increase d-Decrease
d- decrease
Use the information from the table. If the weekly wage is $200, the marginal cost of increasing weekly production from 10 to 22 scarves per week is ______________ than the marginal cost of increasing weekly production from 40 to 46 scarves per week because the marginal product of the second worker is ______________ than the fifth worker. a-Higher, higher b-Lower, lower c-Higher, lower d-Lower, higher
d- lower, higher
At 1,000 units of output the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. If labor is the only variable input and the weekly wage is $1,600, how much labor is being used produce 1,000 units of output? a-5.0 b-17.8 c-16.0 d-10.0
d-10.0
Diminishing marginal returns means that marginal product will eventually ______ and marginal cost will eventually _______. a-Increase; not change b-Decrease; not change c-Increase; decrease d-Decrease; increase
d-Decrease; increase
average cost ______ when MC<AC
decreases
Due to the law of diminishing marginal returns, the marginal product of an input will eventually _______ as more of the variable input is used
diminish
Why is there an upward-sloping marginal cost curve?
diminishing marginal product in the short run. with lower marginal product comes higher marginal costs
When MP<AP the average product will____
fall
If MP is increasing then, MC is_____
falling(if no other factors change)
Should Firm 2 produce? Why or why not?
firm 2 should produce. if the price is greater than average variable costs, losses will be less when the firm produces; more when it does not
9.08 Should Firm 1 produce? Why or why not?
firm one should not produce because it is better off stopping production and only losing $10
the short run for a firm is a period during which some inputs are_____. All inputs can be _____ in the long run.
fixed, varied
MC increases when marginal cost is _____ than AC
greater
Assume the average factory worker in "Maidonia" has lower wages than the average factory worker in "Utopia" and the workers have equal marginal products. Also suppose that both factories have access to the same technology. If for the first time, a firm is free to hire labor in either country, what is likely to happen? What is likely to happen to wage levels in the two countries?
if firms hire workers in maidonia and reduce the number of utopian workers hired. As demand for maidonia workers increase, the wages will increase. As a demand for utopian labor decrease, wages will decrease.
Explain why an equality of marginal product per dollar spent on inputs minimizes costs per unit of output.
if the additional dollar spent on all inputs are not equal, a firm can reduce inputs that have lower marginal products per dollar spent and take a portion of those dollars saved and spend them on other inputs. The firm will have reduced costs as a result
Economies and Diseconomies of Scale determine whether long-run average costs _____ or ______ as output increases
increase, decrease
AC normally decreases as output ______ but eventually begins to increase
increases
Marginal cost may decrease as production ______ but will eventually ________ as output increases
increases, increase (law of diminishing marginal returns)
if MC is decreasing, MC is _____
increasing(if no other factors change)
economies of scale are due to
indivisible capital and advantages of specialization of labor
Is it possible for marginal cost to be falling and average cost to be rising?
it is not possible but is is possible to se increasing MC and decreasing AC
economies of scale
long-run average total cost decreases as the quantity of output increases
diseconomies of scale
long-run average total cost increases as the quantity of output increases
constant returns to scale
long-run average total cost remains constant as the quantity of output increases
in the long run, the minimum cost at each level of output is reached by using the size firm where short-run average costs are the_____ at that level of output
lowest
in the short/long run profit maximizing businesses will choose a combination of inputs that_______ the total cost at each output level
minimizes
total cost increases as ______
output increase
factors of production
resources used to produce goods and services, often divided into three categories: labor, all the physical and mental inputs of people; capital, he machines, tools, buildings, and inventories; and land, the actual land used, including raw materials from land.
when MP>AP the average product will______
rise
Marginal product of capital(MPK)
the change in total output that results from the firm hiring one more unit of capital
marginal product of labor(MPL)
the change in total output that results from the firm hiring one more unit of labor
variable costs
the costs(prices multiplied by amounts of inputs) of the inputs that can be changed. In the Long-run, all inputs are variable. These costs vary as output changes
diseconomies of scale are primarily due to
the difficulties of managing large operations and coordinating many different divisions
If the marginal product of a machine is twice the marginal product of an additional worker and the cost of the machine is one-half the cost of that worker, what should a firm do about its current use of capital and labor? Explain why.
the firm should reduce the labor and expand the amount of capital. This is because the reduction of one worker causes the firm to be able to rent 2 machines
marginal product
the increase in output that arises from using one or more unit of an input while all others are constant (change in TP/ change in labor)
total cost
the sum of total fixed cost and total variable cost
short run
the time period in which at least one input cannot be changed
total revenue
the total amount of money a firm receives for its product at each level of output
total product
the total amount of output produced
average cost
the total cost divided by the total product
average variable cost
the total variable cost divided by the total output. Same as average total cost r average cost in the long-run, when all costs are variable
If a fixed cost does not change as output changes, why do you still have to pay it if you produce zero output?
this is because there are some inputs that you have to pay no matter what. This could include factory space that you still have to pay no matter how much you make.
Does the law of diminishing marginal product hold in the long-run? Why or why not?
yes because input can remain constant in the long run but it can change. IF capital stays constant then we will see diminishing marginal returns to labor. You can always add more capital if needed
