Micro Chapter 12 Review
implicit costs are
costs that represent forgone opportunities.
True economic costs are ____ costs.
opportunity
what is the long run
period in which all inputs can be changed
If the marginal cost of increasing production by one unit is ____ than your current average total cost, then producing that extra unit will decrease your average total cost.
Less
Average total cost is rising when
MC > ATC
If a sandwich shop produces zero sandwiches, which of the following costs will it still incur?
The rented storefront
Average total cost = ____ cost/quantity of output
Total
The amount that a firm pays for all of the inputs that go into producing goods and services is the ____ cost
Total
Average variable cost = Total ____ cost/quantity of output.
Variable
____ costs depend on the quantity of output produced.
Variable
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
Suppose Event Photo Services takes photographs at private events with cameras they purchased. They process the photos in a rented space and hire hourly labor to arrange shoots and produce the finished photo packages. They buy advertising services from a marketing company for a flat annual fee. Their fixed costs include _____.
advertising, rent, and cameras
When a firm faces constant returns to scale, _____.
an increase in the quantity of output does not change the average total cost
formula for marginal cost
change in total cost / change in quantity
The marginal cost is the
change in total cost ÷ the change in the quantity of output.
If a small firm finds that operating on a larger scale causes its average cost to stay the same, the firm is facing
constant returns to scale
The principle of diminishing marginal product states that the marginal product of an input
decreases as the quantity of the input increases.
Variable costs
depend on the quantity of output produced.
If a small firm finds that operating on a larger scale causes its average cost to increase, the firm is facing
diseconomies of scale
Suppose Drink Well produces flavored water in a permanently rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a flat annual fee. Their variable costs include:
labor, water, and bottles
Economists think of the _____ run as the period of time in which a firm can vary all of its costs
long
Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each.Their total cost is
$35,000.
Suppose you are able to produce 50 basketballs. Hiring another employee enables you to produce 65 basketballs. The marginal product of the added worker is ____ basketballs.
15
Explicit costs are:
1: costs that require a firm to spend money 2: costs that include just about everything we typically think of as a cost
Chris spends $240 on a lawn mower for her landscaping business. What is her average fixed cost if she mows the following numbers of lawns?
20 lawns - 12 30 lawns - 8 40 lawns - 6 60 lawns - 4 80 lawns - 3 120 lawns - 2
Suppose with 5 workers you can produce 100 picture frames. With 6 workers you can produce 125 picture frames. The marginal product of the added worker is ____ picture frames.
25
Molly spends $30 on a large cooler for her lemonade stand, her only fixed cost. What is her average fixed cost if she sells the following numbers of cups of lemonade?
5 cups=30/5=$6 10 cups=30/10=$3 15 cups=30/15=$2 30cups=30/30=$1 60 cups=30/60=$0.5 120 cups=30/120=$0.25
12 employees produce 600 skateboards per week. Average product equals ____ skateboards per week.
50
Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of its 10 workers $2,500 a month and spends an average of $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each. The average variable cost per month per sandwich, rounded to the nearest penny, is _____.
8.57 Reason: (10 × 2,500 + 5,000 / 3,500) = 8.57
Total revenue minus explicit costs is
Accounting profit
Gut Bombs sandwich shop pays 10 workers $2,500 a month and spends $5000 on food. Usually the shop sells 3,500 sandwiches per month for $10 each. Their average product of the 10 workers is
Average product = 3500/10 = 350 sandwiches
The minimum of the average total 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.
Blank 1: fixed Blank 2: total or variable
TOTAL COSTS = ______________ costs + _______________ costs
Blank 1: fixed Blank 2: variable
By increasing or decreasing their scale, firms can move along the _____-run ATC curve from one ____-run ATC curve to another.
Blank 1: long Blank 2: short
The ____-run cost curve can be thought of as consisting of points on various ____-run ATCs faced by firms of various sizes, operating at different scales.
Blank 1: long Blank 2: short
The relationship between the quantity of output and average total cost is described by which of the following?
Diseconomies of scale Economies of scale Constant returns to scale
True or false: The long run is any period over one year.
False Reason: The long run is a period during which all inputs and their prices are variable.
The slope of the total cost curve decreases because of the principle of diminishing marginal product.
False Reason: The slope of the total cost curve increases because of the principle of diminishing marginal product.
Average fixed cost = ____ cost/quantity of output.
Fixed
The average ____ cost curve trends downward because as production increases, the cost per unit of production decreases.
Fixed
____ costs are those that don't depend on the quantity of output produced.
Fixed
Costs that don't change as output increases or decreases are called
Fixed cost
When output is very low, each additional worker has a ____ marginal product than the last one; but when more workers are added the marginal product starts to ____
Higher decrease
____ costs represent forgone opportunities.
Implicit
The increase in the number of units of a product that can be produced by hiring an additional employee is called the ____ product of that employee.
Marginal
The principle of diminishing ____ product states that the marginal product of an input decreases as the quantity of the input increases.
Marginal
____ product is represented by the slope of the total production curve.
Marginal
The change in total cost divided by the change in the quantity of output is the
Marginal cost
The marginal product of any input into the production process is the increase in
Output
The relationship between the quantity of inputs and the quantity of outputs is the ____ function.
Production
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
Suppose Drink Well produces flavored water in a rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a fee based on sales. Their fixed costs include
Rent
Marginal product is represented by the ____ of the total production curve.
Slope
If a firm decreases production, its:
fixed costs stay the same.
Implicit costs are costs that
do not require a firm to spend money or take on obligations.
Fixed costs are those that
don't depend on the quantity of output produced.
Economists think of the long run as being the period of time
during which a firm can vary all of its inputs and their costs.
In general, _______ profit is smaller than ________ profit
economic, accounting
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.
Costs that require a firm to spend money are
explicit
Firms have both explicit and implicit costs. Accounting profit is total revenue minus ____ costs.
explicit
Rent on a building, employee salaries, materials, and machines are examples of ____ costs.
explicit
what are rent on a building, employee salaries, materials, and machines an example of?
explicit costs
the average ______ cost curve trends downward because as production increases, the cost per unit of production increases
fixed
Explicit costs include
fixed and variable costs.
Average fixed cost equals
fixed cost divided by quantity
what is the formula for total cost
fixed cost+variable cost
What is the average fixed cost formula
fixed cost/quantity of output
Total costs =
fixed costs + variable costs.
The average fixed cost curve trends downward because the
fixed costs remain the same as production increases.
What is the implicit cost of using your saved money as your start-up capital?
give up interest you could have earned on the money in a savings account
When economists think about a firm's costs, they are thinking about everything the firm
gives up in order to produce output.
Costs that do not a require a firm to spend money or take on obligations are
implicit costs
Because of the principle of diminishing marginal product, the slope of the total cost curve _______
increases
If the marginal cost of increasing production by one unit is more than your current average total cost, then average total cost of producing that extra unit_______
increases
Diseconomies of scale are returns that occur when an increase in the quantity of output
increases average total cost.
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 _______
increases, decreases
Marginal cost initially decreases as marginal product ______ and then increases as marginal product ____
increases, decreases
How can firms move along the long-run ATC curve from one short-run ATC curve to another?
increasing or decreasing their scale
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 _______
increasing, downward, upward
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.
Suppose Event Photo Services takes photographs at private events. They process the photos in a permanently rented space and hire hourly labor to arrange shoots and produce the finished photo packages. They buy advertising services from a marketing company for a fee based on sales.Their variable costs include
labor and advertising.
Suppose Drink Well produces flavored water in a permanently rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a flat annual fee. Their variable costs include _____.
labor and bottles
Suppose Jump High produces trampolines in a rented space using purchased frames and materials. They also hire labor at a per unit rate and buy advertising services from a marketing company for a flat annual fee. Their variable costs include _____.
labor and materials
When a firm realizes economies of scale, it can
lower its average cost by producing more output
Suppose Drink Well produces flavored water in a rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a fee based on sales. The owners used $100,000 of their savings to start the company.Explicit costs include
purchased bottles, hired hourly labor, and advertising services.
The production function shows the relationship between the
quantity of inputs and the quantity of outputs.
what do economies of scale, diseconomies of scale, and constant returns describe the relationship between?
quantity of output and average total cost
Economies of scale, diseconomies of scale, and constant returns to scale describe the relationship between the
quantity of output and average total cost.
The amount that a firm receives from the sale of goods and services is its total _____
revenue
Total revenue is the quantity
sold multiplied by the price paid per unit.
In business, people frequently say, "It's all about the bottom line." What they mean by this is:
that making a profit is the central goal of business
When a firm could achieve economies of scale by expanding
the ATC curve decreases as output increases.
What is total revenue
the amount a firm receives for the sale of its output
what is total cost
the amount that a firm pays for all of the inputs that go into producing goods and services
A firm's first few employees tend to have increasing marginal product. At some point, the principle of diminishing marginal product kicks in. As a result,
the average total cost curve is U-shaped.
A firm's first few employees tend to have increasing marginal product. At some point, the principle of diminishing marginal product kicks in. As a result:
the average total cost is U shaped
What is profit
the difference between total revenue and total cost
what does variable cost depend on
the quantity of output produced
What does the production function show
the relationship between the quantity of inputs used to produce a good and the quantity of output of that good
Average total cost equals
total cost divided by quantity
what is the average total cost formula
total cost/quantity of output
What is accounting profit
total revenue - explicit costs
formula for average variable cost
total variable cost / quantity
what is the average product of labor formula
units of output/workers
Average variable cost equals
variable cost divided by quantity of output.
If a firm stops production, then its:
variable costs drop to zero fixed costs stay the same. total costs decrease Ans: All of these are correct.
If a firm produces nothing, its _____ equal zero.
variable costs66
A flat portion of an average total cost curve represents the
various different levels of output at which the firm achieves constant returns to scale.
When is a firm operating at an efficient scale?
when it cannot lower its average cost by either increasing or decreasing its scale
