Exam #3

Economists normally assume that the goal of a firm is to (i)sell as much of their product as possible. (ii)set the price of their product as high as possible. (iii)maximize profit.

(iii)only

To an economist, it is conceivable that the objective that motivates an individual entrepreneur to start a business arises from an innate love for the type of business that he or she starts. a desire to earn a profit. an altruistic desire to provide the world with a good product.

All the above

Assume that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. Average total cost will be?

Always falling

Marginal cost tells us the

Amount by which output rises when labor is increased by one unit

Which of the following statements about costs is correct?

As the quantity of output increases, marginal cost eventually rises

Average total cost is very high when a small amount of output is produced because

Average fixed cost is high

When a firm is operating at an efficient scale

Average total cost is minimized

Diseconomies of scale often arise because higher production levels allow specialization among workers T/F

False

Economists normally assume that people start their own businesses to help society maximize its income T/F

False

Fixed costs are those costs that remain fixed no matter how long the time horizon is T/F

False

If the marginal cost curve is rising, so is the average total cost curve T/F

False

In the long run, a factory is usually considered a fixed input T/F

False

The average total cost curve is unaffected by diminishing marginal product T/F

False

The fact that many decisions are fixed in the short run but variable in the long run has little impact on the firms cost curves T/F

False

The shape of the total cost curve is unrelated to the shape of the production function T/F

False

Variable costs equal fixed costs when nothing is produced T/F

False

when economists speak of a forms costs, they are usually excluding the opportunity costs T/F

False

Which of the following costs do not vary with the amount of output a firm produces?

Fixed Costs

The long-run average total cost curve is always

Flatter than the short-run average total cost curve, but not necessarily horizontal

How long does it take a firm to go from the short run to the long run?

It depends on the nature of the firm

The amount by which total cost rises when the firm produces one additional unit of output is called

Marginal cost

The firm's efficient scale is the quantity of output that minimizes

Marginal cost

Diminishing marginal product suggests that the marginal

Marginal cost is upward sloping

Which of the following costs would be regarded as an implicit cost?

Opportunity Costs

The marginal product of an input in the production process is the increase in

Quantity of output obtained from an additional unit of that input

A total-cost curve shows the relationship between the

Quantity of output produced and the Total cost of production

Explicit Costs

Require an outlay of money by the firm

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?

The cost of hookkeeping services

Which of the following statements about a production function is correct for a firm that uses labor to produce output?

The production function depicts the relationship between the quantity of labor and the quantity of output.

What can be added to profit to obtain total revenue?

Total cost

the amount of money that a firm pays to buy inputs is called

Total cost

Total revenue equals

Total output multiplied by price per unit of output

accounting profit is equal to

Total revenue minus the opportunity cost of producing goods and services

Profit is defined as

Total revenue minus total cost

A second or third worker may have a higher marginal product than the first worker in certain circumstances T/F

True

Accountants keep track of the money that flows into and out of firms T/F

True

Accountants often ignore implicit costs T/F

True

As a firm moves along its long run average cost curve, it is adjusting the size of its factor to the quantity of production T/F

True

Assume jack received all a's in his classes last semester, If jack gets all c's in his classes this semester his GPA may or may not fall T/F

True

Average total cost and marginal cost were merely ways to express information that is already contained in a firms total cost T/F

True

Average variable cost is equal to total variable cost divided by quantity of output T/F

True

Diminishing marginal product function becomes flatter as input increase T/F

True

Fixed costs are incurred even when a form does not produce anything T/F

True

Implicit costs are costs that do not require an outlay of money by the firm T/F

True

In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller facotires T/F

True

The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves T/F

True

The cost of producing an additional unit of a good is not the same as the average cost of the good T/F

True

The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve T/F

True

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are T/F

True

Variable costs usually change as the firm alters the quantity of output produced T/F

True

When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale T/F

True

When trying to understand the decision making process of different firms, economists assume that people think at the margin T/F

True

because of the greater flexibility that firms have in the long run, all short run cost curve lie on or above the long run curve T/F

True

If a firm produces nothing, which of the following costs will be zero?

Variable costs

Economies of scale arise when

Workers are able to specialize

Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic

in the short run, but not in the long run

The marginal product of labor is equal to the

increase in output obtained from a one unit increase in labor

A production function is a relationship between

inputs and outputs

If marginal cost is below average total cost, then average total cost

is decreasing

Diminishing marginal product suggests that

marginal cost is upward sloping

Average total cost is increasing whenever

marginal is greater than average total cost

If marginal cost is rising

marginal product must be falling

The efficient scale of the firm is the quantity of output that

minimizes average total cost

An example of a fixed cost would be

rent, insurance premiums or loan payments

At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost

rises

The marginal cost curve crosses the average total cost curve at

the efficient scale

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run

the size of the factory is fixed

Which of these assumptions is often realistic for a firm in the short run?

the workers can vary the number of workers it employs but not the size of its factory

The shape of the marginal cost curve tells a producer something about the margin product of her workers T/F

true

When a firm is able to put idle equipment to use by hiring another worker,

variable cost will rise

Average total cost reveled how much total cost will change as the form alter its level of production T/F

False

Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases T/F

False

Fixed costs can be defined as costs that

an incurred even if nothing is produced

If a firm wants to capitalize on economies of scale, it may be able to do so by

assigning limited tasks to their employees, so they can master those tasks

Which of the following must always be true as the quantity of output increases?

average fixed cost must fall

The cost of producing the typical unit of output is the firm's

average total cost

Marginal cost is equal to average total cost when

average total cost is at its minimum

When marginal cost is less than average total cost,

average total cost is falling

When marginal cost exceeds average total cost,

average total cost must be rising

Long-run average total cost curves are often U-shaped

because of increasing specialization of workers at low levels of production and increasing coordination problems at high levels of production.

In reference to setting the production level, a firm's cost curves

by themselves do not tell us what decisions the firm will make

The marginal product of labor can be defined as

change in labor divided b change in labor

One would expect to observe diminishing marginal product of labor when

crowded office space reduces the productivity of new workers

When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of

diminishing marginal product

Specialization among workers occurs when

each worker is allowed to perfect one particular task

Some costs do not vary with the quantity of output produced. Those costs are called

fixed costs