Microeconomics Chapter 11, Chapter 11 Quiz
What are implicit costs? An implicit cost is
a nonmonetary opportunity cost.
What is the law of diminishing returns? The law of diminishing returns states that Does it apply in the long run?
adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline. No
Fixed Input
an input whose quantity is fixed for a period of time and cannot be varied (for example, land).
Which of the following is most likely to a variable cost for a business firm?
cost of shipping products
Average cost:
cost/unit
Economies of scale happen when the firm's long run average total cost ________ as output increases.
decreases
As the level of output increases, what happens to the difference between the value of average total cost and average variable cost? As the level of output increases, the difference between the value of average total cost and average variable cost
decreases because average fixed cost decreases as output increases.
Economic cost
expect cost + implicit cost
TFC
expenditures and implicit costs on fixed input - would include
For Jill Johnson's pizza restaurant, explain whether each of the following is a fixed or variable cost. The payment she makes on her fire insurance policy is a ___ cost
fixed
The lease payment she makes to her landlord who owns the building where her store is located is a ____ cost
fixed
The $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a ______ cost.
fixed
Any cost that remains unchanged as output changes represents a firm's
fixed cost
Firms experience economies of scale for several reasons. What is one such reason? A firm might experience economies of scale because
large firms may be able to purchase inputs at lower costs than smaller competitors
When the average product of labor is increasing, the average product of labor is ________ the marginal product of labor, and when the average product of labor is decreasing, the average product of labor is _______ the marginal product of labor.
less than , greater than
Marginal product:
the additional quantity of output produced by using one more unit of that input.
What does the short-run production function hold constant? A short-run production function holds constant
the amount of capital
Demising returns to an input:
the effect observed when an increase in the quantity of an input, while holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.
In economics, the best definition of technology is
the process a firm uses to turn inputs into outputs.
The payment she makes to buy pizza dough is a _____ cost
variable
How are implicit costs different from explicit costs?
An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost.
Average product
Ap=Tp/Quantity of Variable input
Average fixed cost
AFC=TFC/Q
Marginal product of labor
The additional output a firm produces as a result of hiring one more worker.
Which of the following is true of the relationship between the average product of labor and the marginal product of labor
Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing.
What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory?
Firms have difficulty coordinating production.
What is the distinction between the economic short run and the economic long run?
In the short run, at least one input is fixed, but in the long run, the firm can vary all inputs.
What is the difference between the short run and the long run?
In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
Short run
The period of time during which at least one of a firm's inputs is fixed.
Long run
The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.
Average product of labor
The total output produced by a firm divided by the quantity of workers.
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain
Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.
The marginal cost of production shows the change in a firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost curve? Graphically, the marginal cost curve is
a U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.
Variable cost
a cost that depends on the quantity of output produced; the cost of a variable input.
Fixed cost
a cost that does not depend on the quantity of output produced; the cost of a fixed input.
Total productive curve:
a graphical representation of the production function, showing how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.
Total cost curve
a graphical representation of the total cost, showing how total cost depends on the quantity of output.
Long run average total cost curve:
a graphical representation showing the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.
Your company incurs a cost for factory rent, which, in the short run, is fixed. What happens to this cost in the long run? In the long run, the cost of factory rent
becomes a variable cost.
Further, positive technological change is defined as
being able to produce more output using the same inputs., being able to produce the same output using fewer inputs.
Suppose a firm's average total cost curve is decreasing with output. What can be said of its marginal cost curve? The firm's marginal cost curve must be
below the average total cost curve.
TVC is determined
from production function and prices of the variables
What is the production function? The production function is the relationship between
he inputs employed by a firm and the maximum output it can produce with those inputs.
If the firm's marginal costs are $5 at every level of output, what shape will the firm's average total cost have? The firm's average total cost curve will be ______
horizontal
What is a production function? A firm's production function is best described as
illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.
The short-run average cost can never be less the long-run average costs because
in the long run, all inputs are adjusted including the ones that are fixed in the short run.
The law of diminishing returns applies
in the short run.
The federal government starts to levy a $20 per passenger carbon emissions tax on all commercial air travel. Marginal cost would __________, average variable cost would _______, average fixed cost would ______, and average total cost would ______.
increase; increase; remain unchanged; increase
When the marginal product of labor is greater than the average product of labor, then the average product of labor must be
increasing
Which of the following is most likely to be a fixed cost for a farmer?
insurance premiums on property
Increasing returns to scale:
long-run average total cost declines as output increases (also referred to as economies of scale).
Decreasing return to scale:
long-run average total cost increases as output increases (also known as diseconomies of scale).
Constant returns to scale
long-run average total cost is constant as output increases.
The marginal cost curve intersects both the average variable cost and the average total cost curves at their _____ points
minimum
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the
production function.
Southwest decides on an across-the-board 10 percent cut in executive salaries. Marginal cost would _______, average variable cost would _______, average fixed cost would ______, and average total cost would___________.
remain unchanged; remain unchanged; decreased; decreased
Suppose Sheri owns a restaurant that serves pizza using three inputs: workers, restaurant space (and layout), and ovens. If workers are fixed, restaurant space (and layout) is fixed, and ovens are variable, then Sheri is producing pizza in the
short run
The law of diminishing returns states
that adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will eventually cause the marginal product of the variable input to decline. In this case, the marginal product of labor begins to decline when the fourth worker is hired.
Production function:
the relationship between the quantity of inputs a firm uses and the quantity of output it produces.
Long run
the time period in which all inputs can be varied.
Short run
the time period in which at least one input is fixed.
What is the difference between total cost and variable cost in the long run? In the long run,
the total cost of production equals the variable cost of production.
Which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long run, when no inputs are fixed?
the long-run average cost curve
VC
total expenditures on viable inputs e.g. raw materials
The wages she pays her workers is a ____ cost
variable
Any cost that changes as output changes represents a firm's
variable cost.
In the short run, at least one input is fixed, but in the long run, the firm can vary all inputs.
variable costs
Economies of scale occur
when a firm's long-run average costs decrease with output.
What are diseconomies of scale? Diseconomies of scale is
when a firm's long-run average costs increase with output.
Suppose that last semester your semester GPA was 1.90 and your resulting cumulative GPA was 2.59. Next, suppose that this semester your semester GPA will be 2.00. If so, then your cumulative GPA
will decrease because your "marginal" GPA will be below your cumulative GPA.
The GPA you earn in a particular semester is your ________ GPA, and your cumulative GPA for all completed semesters is your ________ GPA.
marginal; average
What is the difference between the average cost of production (ATC) and marginal cost of production (MC)?
ATC=TC/Q; MC=ΔTC/ΔQ.
How do specialization and division of labor typically affect the marginal product of labor? In the initial stages of production, specialization and division of labor lead to an increasing marginal product for workers,
allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently.
variable input
an input whose quantity the firm can vary at any time (for example, labor).
What is the difference in the short run and the long run? In the short run,
at least one of the firm's inputs is fixed, while in the long run, the firm is able to vary all its inputs, adopt new technology, and change the size of its physical plant.
