Micro - Chapter 8

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

$6,000.

The average fixed costs of a firm equal

(total cost minus variable cost) divided by output.

Which of the following is an implication of the law of diminishing returns?

In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost.

Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise?

When diminishing marginal returns set in, it will take ever-larger quantities of the variable resources to produce an additional unit of output.

In the short run, the firm's average fixed costs

always decline as output increases.

Economies of scale imply that within some range a firm can increase the size of operation and

average total cost will decrease.

Fixed costs are best defined as

costs that do not vary with output.

If fixed cost at quantity (Q) = 100 is $130, then

fixed cost at Q = 200 is $130.

If a firm has a U-shaped long-run average cost curve,

it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production.

Where marginal cost is less than average total cost,

marginal cost may be rising, falling, or constant.

A local doughnut shop produces about 600 dozen doughnuts daily. If flour prices increase 20 percent

marginal cost, average variable cost, and average total cost will shift up.

Long-run diseconomies of scale exist over the range of output for which the long-run average total cost curve

rises.

The short run is the time period during which

some of the firm's input decisions are constrained by previous commitments.

The long run is a period of

sufficient length to allow a firm to alter its plant size and capacity and all other factors of production.

When making choices, suppliers should not allow sunk costs to directly affect their current decisions because

sunk costs do not reflect foregone opportunities accompanying current choices.

Economists refer to historical costs (irreversible costs already incurred) as

sunk costs.

The marginal cost of a good is

the cost of an additional unit.

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

the firm is experiencing diseconomies of scale.

The minimum points of the average variable cost and average total cost curves occur where

the marginal cost curve intersects those curves.

The rate of return that owners of capital must receive in order to induce them to continue supplying the capital is often referred to as

the normal or market rate of return.

The normal rate of return on equity capital is also known as

the opportunity cost of capital.

Accounting costs are often unsatisfactory from the economist's point of view because

they often exclude the opportunity costs of the firm's equity capital.

The sum of the explicit and implicit costs incurred in the production process is called

total cost.

Average fixed costs

will always decrease as output expands.