Practice

The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers illustrate:

constant returns to scale. When long-run average cost is constant as output rises, constant returns to scale are present.

If marginal cost is less than average variable cost, average variable cost will:

decrease as output rises. When the cost of producing another unit of output is less than average variable cost, average variable cost will fall.

An isocost line is a line that represents combinations of:

factors of production that cost the same amount. The position of each isocost line reflects input prices and total costs.

Because there are very significant economies of scale involved in making flat screen television sets in a competitive market, the price of flat screen TVs will:

fall as output expands because long-run average total costs are lower for higher quantities. Significant economies of scale mean that in a competitive environment, price falls as output expands because the long run average cost curve is downward sloping.

wrong because the average fixed cost curve is drawn incorrectly.

The average fixed cost curve should be downward-sloping and not horizontal because with increased production the average fixed cost declines.

he average product when eight workers are employed is:

The average product equals total output divided by the number of workers or 48/8 = 6.

The average variable cost curve is represented by which curve?

The average variable cost curve is U-shaped and lies below the average total cost curve (curve III).

The long-run average total cost curve is considered to be an envelope curve as each short-run average total cost curve touches it at only one level of output.

True

The minimum efficient level of production refers to the production level in the long run that spreads setup costs out just enough to make production profitable.

True

Variable costs:

are the only costs that exist in the long run. Since all inputs are variable in the long run, all costs are variable in the long run.

Refer to the table shown. If seven workers are employed, total output equals:

53 Total output equals the sum of the marginal products of the first seven workers.

Refer to the graph shown. A firm can produce the same amount of output at points:

A and C. Since points A and C are on the same isoquant curve, they are associated with the same level of output.

Refer to the graph shown. The line segment that represents average fixed costs of producing Q* is:

AB. The average fixed costs at Q* is the difference between ATC and AVC at quantity Q* or segment AB.

Constant returns to scale means that long-run:

ATC does not change as output increases.

A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, accounting profit for 50 items is:

Accounting profit equals explicit revenue ($5 × 50) minus explicit cost ($14), or $236.

The marginal rate of substitution of an isoquant curve is the rate at which:

inputs must be substituted for one another to keep output constant. The marginal rate of substitution is the absolute value of the slope of the isoquant.

The economically efficient method of production:

is influenced by the relative scarcity of inputs. Relative factor scarcity affects input prices and therefore influences average total costs of production.`

Refer to the graph shown. If the seller expects a price of $48:

it is not economically feasible to produce any level of output. Average cost exceeds $48 at any level of output, and so there is no level of production that is profitable.

Refer to the graph shown which shows total product. At point B:

marginal product is zero. At its maximum point, the total product curve has a slope of zero, meaning that marginal product must be zero.

Globalization has made economies of scope:

more important to firms because global corporations can segment the production process. As an example, U.S. firms can locate manufacturing in other countries where labor costs are lower.

If the average total cost of supplying a good exceeds the price at which the good can be sold, then entrepreneurs have:

no incentive to supply the good If average total cost exceeds price, profit is negative.

The law of diminishing marginal productivity does not apply in the long run because:

no inputs are fixed in the long run. Because all inputs are variable in the long run, the law of diminishing marginal productivity does not apply.

Since capital is relatively scarce in India, the economically efficient method of producing food would probably:

not be capital-intensive. Since capital is relatively scarce, it will also be relatively expensive, making capital-intensive production methods more costly.

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her implicit costs of the new business include:

only her forgone salary of $42,000 per year. Forgone salary is an example of an implicit cost.

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her explicit costs for her new business include:

only the expenses incurred for office space, equipment, and supplies.

When labor is the variable input, the average product equals the:

quantity of output divided by the number of workers.

Technological change:

reduces average total cost by changing production techniques. Improved technology means that a firm can either produce the same output at a lower cost or produce more output at the same cost.

Refer to the graph shown. The graph exhibits economies of scale:

region a Since long-run average cost decreases as output increases, this range exhibits economies of scale.

The marginal cost curve:

rises when the point of diminishing marginal productivity is reached. When diminishing productivity is reached, marginal product begins to decline, implying that more variable inputs are needed to increase output by one unit. Since more inputs are necessary to produce an additional unit of output, marginal cost rises.

The marginal cost curve intersects the average total cost curve when average variable costs are:

rising This must be true because the average variable cost curve reaches a minimum before the average total cost curve (MC intersects both ATC and AVC at their minimum points). At any output above the level at which average variable cost reaches a minimum, average variable cost is rising.

ABC Co. produces only gadgets, and XYZ Co. produces both gadgets and widgets. If ABC Co. produces gadgets at the same average total cost as XYZ Co., economies of:

scope are not present in XYZ. If economies of scope were present in XYZ, the average total cost of producing gadgets would be below that of ABC.

Fixed costs exist only in the

short run when some inputs are fixed. Fixed costs exist only in the short run because some inputs cannot be changed in the short run. All inputs, and therefore costs, are variable in the long run.

"For-benefit" corporations are created to pursue multiple goals, such as profitability, social responsibility, and value for the broader society. These firms provide examples of:

social entrepreneurship. A social entrepreneur focuses on achieving social, rather than just economic, ends. See the discussion in the text of the for-benefit pharmaceutical company Novo Nordisk.

In the short run

some inputs are variable and some inputs are fixed. At least one input is fixed in the short run.

A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, economic profit equals:

$176.Economic profit equals explicit and implicit revenues ($5 × 50) minus explicit costs ($14) and implicit costs ($10/hour × 6 hours), or $176.

When output is 500, a firm's fixed costs are $10,000 and its variable costs are $15,000. The firm's total costs are therefore:

$25,000.

Refer to the graph shown. If the firm's total cost is $375, capital must cost:

$31.25 per unit. The position of the isocost indicates that if the firm spends the entire $375 on capital, it can afford 12 units of capital. Divide 375 by 12 to find the per-unit cost of capital of $31.25. Recall that all combinations on the isocost line have the same total cost.

If your cell phone bill is $40 when you use up to 300 minutes per month or $80 when you use between 300 and 400 minutes per month, the marginal cost of the 301st minute is:

$40. Marginal cost is the change in total cost divided by the change in output, and so marginal cost in this case is $40 divided by 1 minute.

An entrepreneur would be least likely to develop a product if expected average total cost is:

$65 and expected price is $40. There is a per-unit loss of $25 in this case, whereas the other cases present either a gain or a break-even.

At one time, sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 each. Based on these numbers, the average total cost of making five fake killer whales would be:

$7,200. The cost of the first whale is $16,000 because this includes the cost of making the mold, but each additional whale adds only $5,000 to costs. The total cost of making five whales is $36,000, and the average total cost is $36,000/5 = $7,200.

To manufacture 1,000 pairs of shoes in a week, a firm can use 1,500 workers and 50 machines or 100 machines and 2,000 workers. Which method is more technically efficient?

1,500 workers and 50 machines This method uses fewer units of both machines and workers than the alternative method.

Refer to the graph shown. The most economically efficient way to produce 1,000 units of output is to use:

10 units of machines and 15 units of labor. The isoquant associated with 1,000 units of output is tangent to an isocost line at this input combination.

Refer to the graph shown. If the seller expects a price of $52, the minimum amount the firm must produce to be profitable is:

17 Since long-run average cost exceeds $52 until output reaches 17, this is the smallest output level at which production does not produce a loss.

Refer to the table shown. The marginal product of the third worker is:

17. With two workers each producing an average of 5 units, total output is 10. With three workers each producing an average of 9 units, total output is 27. Since output rises from 10 to 27 with the addition of the third worker, the marginal product of this worker is 17.

Refer to the graph shown. The cheapest way to produce 1,000 units of output is with:

2 workers and 7.2 units of capital. The least-cost input combination for 1,000 units of output is at point D, where the isocost curve and the isoquant are tangent.

Robert withdrew $100,000 from an account that paid 10 percent annual interest and used the funds to purchase real estate. After one year he sold the property for $120,000. The accounting profit on this deal was:

20,000 Accounting profit is the difference between the sale price and the initial investment. The accountant does not include the opportunity cost of buying the real estate, which is the 10 percent interest rate paid on $100,000 if the money had been left in a bank account.

Which of the following is an example of a short-run decision?

An automobile manufacturing company considering whether to expand its existing workforce. In a short-run decision, typically labor can be changed while other inputs (and the production technique) remain the same. Firms can change all of their inputs in the long run, but in the short run some inputs are fixed.

Which short-run cost curve continually declines as output increases?

Average fixed cost The average fixed cost curve declines as more output is produced because total fixed costs are spread out over more and more units of output.

When output is 50, fixed costs are $1,000, and variable costs are $2,000, what is the average total cost?

Average total cost equals total cost divided by output. Total cost in this case is $3,000, and so average total cost is $3,000/50 = $60.

Why does the distance between curves II and III get smaller as quantity increases?

Average total cost is the sum of average variable cost and average fixed cost. Since average fixed cost declines as output increases, the average total and average variable cost curves must converge

If a firm's average fixed cost is $4 and its average total cost is $6, its average variable cost is:

Average variable cost equals the difference between average total cost and average fixed cost, or $6 - $4 = $2.

Refer to the graph shown. The least-cost method of producing 1,000 units of output is shown at point:

D The least-cost method of production is where the isoquant for Q = 1,000 is tangent to an isocost line.

A business produces 400 items and sells them for $15 each for a total of $6,000. The total cost of producing the items is $4,500 in explicit cost and $1,000 in implicit cost. Economic profit is:

Economic profit equals revenues ($15 × 400 = $6,000) minus explicit costs ($4,500) and implicit costs ($1,000), or $500.

Economies of scale do not exist in the presence of indivisible setup costs.

False Sizable indivisible setup costs entail economies of scale because higher production levels are necessary for production to be economically efficient.

economic profit

Implicit and explicit revenues minus implicit and explicit costs equals:

If the average cost of producing 9 sweaters is $6.50 and the marginal cost of producing the tenth sweater is $6.25, the average cost of producing 10 sweaters will:

Less than 6.50 If marginal cost is less than average cost, average cost will decrease and therefore be less than $6.50. In this case, average cost of producing 10 sweaters is ($6.50 × 9 + $6.25)/10 = $6.48.

Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so that all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. It will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day:

Marginal cost is the change in total cost divided by the change in output, and so marginal cost in this case is the $75 cost of an additional driver divided by the added 75 - 60 = 15 deliveries, or $75/15 = $5 per delivery.

The increase in output obtained by hiring an additional worker is known as:

Marginal product is the additional output obtained by using one more unit of variable input; in this case, labor is the variable input.

Which of the following provides the best explanation for diseconomies of scale?

Monitoring costs Monitoring costs increase with a firm's size because supervising larger firms becomes increasingly complex. Diminishing marginal productivity is a short-run concept. Indivisible setup costs help explain economies of scale.

Which of the following provides the best explanation for constant returns to scale?

Replication of production techniques If a firm enters a region of constant returns, it means that the firm is able to replicate production techniques. The behavior of marginal product is a short-run issue.

Refer to the graph shown. If a firm expected to produce 900 units when it built its plant but now desires to reduce its output to 600 units in the short run, it will use the plant size represented by:

SATC3. In the short run the plant size is fixed at the level that minimizes the cost of producing the planned output.

The marginal product and average product curves:

Since average product is rising when marginal product is above average product, curve A must be marginal product and curve B must be average product.

At one time sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 ach. Based on these numbers, the total cost of making two fake killer whales would be:

The cost of the first whale is $16,000 because this includes the cost of making the mold, but each additional whale adds only $5,000 to costs (the molding being a fixed cost), and so the cost of making two whales is $21,000.

Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the economically efficient cost of producing 1,000 units of output is:

The input combination at point B (where the isoquant and isocost curves intersect at Q = 1,000) costs $300.

Refer to the graph shown. This set of cost curves is:

The marginal cost curve goes through the minimum points of the AVC and ATC curves in that order. The ATC hits its minimum after the AVC curve does because fixed costs are included in the ATC.

In the graph shown, the marginal cost curve is represented by which curve?

The marginal cost curve intersects the average total cost (curve III) and average variable cost (curve II) curves at their minimum points.

Refer to the graph shown. Within which section(s) of the production function is the marginal product of labor decreasing?

The marginal product of labor falls when hiring another worker produces a change in output that is less than that produced by the previous worker. This is true whenever the slope of the production function decreases as employment increases.

Which of the following is most likely to be an example of economies of scale?

The per-unit costs on Excel Publishing Company's manuals fall because it adopted a new technology after receiving a large order from the government. Economies of scale imply that per-unit cost declines as output increases.

production function

The relationship between the quantity of inputs and the quantity of output is called the:

The average total cost of producing electronic calculators in a factory is $20 at the current output level of 100 units per week. If fixed cost is $1,000 per week:

Total cost equals $2,000 = $20 × 100, and so variable cost equals $1,000. Average variable cost is then $1,000/100, or $10.

The only variable input used in producing bicycles in a small factory is labor. Currently four workers are employed; each works 40 hours per week and is paid $10 per hour. If fixed cost is $2,000 per week and total output is 10 bicycles per week, average cost is:

Total cost equals fixed cost plus variable cost, or $2,000 + 4 workers × 40 hours/worker × $10/hour = 3,600. Average cost equals total cost divided by output, or $3,600/10 = $360.

Refer to the table shown. If the number of workers is three, total output is:

Total output is equal to number of workers times the average product; 3 × 9 = 27.

A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost?

Total variable cost equals average variable cost times output, or $300 in this case. Since total fixed cost is the difference between total cost and total variable cost, or $400 - $300, it must equal $100

Economies of scope exist when the production of one good is less costly because other related goods already are being produced.

True

The production techniques available to real-world firms are constantly changing because of learning by doing and technological change.

True Technological change produces new production methods, and learning by doing allows firms to refine existing production techniques.

Refer to the table shown. When average product is 8, total output is:

When the average product is 8, employment is 6. Since total output equals the average product times the number of workers, it must equal 48.

fixed cost

Which of the following costs is independent of output?

Which of the following is most likely an example of constant returns to scale?

Widget Manufacturing doubled its production by opening a new plant that was identical to its old plant. In this example, the firm is replicating production techniques. If both output and costs double, the firm is experiencing constant returns to scale.

A regional airline owns 10 aircraft and employs 20 pilots. The airline makes an average of three trips per day with each of its 10 aircraft. The aircraft and their ground crews are idle part of the day. Minimum rest requirements for its pilots mean that if the airline wants to increase its flights, it must hire more pilots. The decision to hire more pilots is:

a short-run decision because the number of aircraft is held constant while the labor input is changed. The aircraft are fixed capital inputs in this problem, and the decision to hire or fire workers (pilots or ground crew) is a short-run decision because it is relatively easy to adjust the amount of labor.

Total revenue minus explicit measurable costs equals:

accounting profit. As explained in the text, accountants do not estimate implicit costs or opportunity costs in the calculation of profit.

In the long run:

all inputs are variable.

Long-run average costs at any output level will:

always be less than or equal to short-run average total costs. Since all inputs are variable in the long run whereas some are fixed in the short run, long-run average costs will always be less than or equal to short-run average total costs.

Diseconomies of scale are associated with:

an upward-sloping long-run average cost curve.

Total fixed costs:

are positive even when no output is produced. Total fixed costs do not vary with output. They are constant.

Refer to the graph shown. Total fixed cost of producing Q* is represented by:

area ABEF. Since AFC is the difference between ATC and AVC at quantity Q*, or segment AB, and the AF segment is the same length as 0Q*, total fixed cost is area ABEF. The graph does not need to show the AFC curve to identify TFC at Q*. TFC remains the same regardless of output because as output increases, average fixed cost, or the difference between the ATC and AVC curves, decreases proportionately.

The vertical distance between the average total cost curve and the average variable cost curve is:

average fixed cost. Average total cost is the sum of average variable cost and average fixed cost given a certain quantity.

The average variable cost curve is a mirror image of the:

average product curve. As the average product rises, more output is produced on average from each unit of a variable input, and so average cost must decline. The converse is true when average product falls.

Output per worker is also called:

average product. Note that output per worker is different from the additional output of the last worker hired (marginal product).

If marginal cost is less than average total cost:

average total cost is decreasing with output. Average total cost must be decreasing in this case because the cost of producing another unit of output is less than the current per-unit cost.

In the short run, average variable cost equals:

average total cost minus average fixed cost. Average variable cost can be calculated by subtracting average fixed cost from average total cost. Average variable cost equals total cost divided by output when fixed costs are zero.

If the average cost of producing 9 sweaters is $6.50 and the marginal cost of producing the tenth sweater is $6.75, the average cost of producing 10 sweaters will:

be more than $6.50. If marginal cost is greater than average cost, average cost will increase and therefore be more than $6.50. In this case, average variable cost will equal 6.50 × 9 + $6.75)/10 = $6.53 after the tenth sweater is produced.

At the level of output where marginal product begins to fall, marginal costs will:

begin to rise. The law of diminishing marginal productivity implies that it takes more variable inputs to produce a unit of output, and so marginal cost must increase.

The merger between two general merchandise stores, Sears and Kmart, each of which carried some specialty items, most likely produced:

both economies of scope and economies of scale. A merger between these two would allow them to spread the cost of marketing, advertising, and distribution over a much larger scale of operation (economies of scale). To the extent that Sears did not offer the exact same merchandise as Kmart, a merger created economies of scope by expanding the number of products offered by either firm.

If a firm is operating at the point of tangency between an isoquant and an isocost line, its production is:

both technically and economically efficient. Since the firm is on an isoquant, it cannot produce the same amount of output with fewer inputs, and so it is technically efficient. Since any movement along the isoquant will increase costs without changing output, the firm is also economically efficient.

Variable costs:

change as output changes.

Using 100 workers and 10 machines, a firm can produce 10,000 units of output; using 250 workers and 25 machines, the firm produces 21,000 units of output. These facts are best explained by:

diseconomies of scale. Average cost will increase in this case because the number of inputs is increased 150 percent but output increases only 110 percent, and so the per-unit cost must increase.

The upward-sloping portion of the long-run average total cost curve is caused by:

diseconomies of scale. Diseconomies of scale imply that as all inputs are increased in the long run, average cost eventually rises.

The upward-sloping part of the long-run average cost curve is explained by:

diseconomies of scale. When diseconomies of scale are present, increases in output produce increases in long-run average cost. Decreasing marginal productivity is a short-run concept that does not apply in this situation.

The long-run average cost of producing 12 units of output is $54; the long-run average cost of producing 13 units is $56. These numbers illustrate:

diseconomies of scale. When long-run average cost increases as output rises, diseconomies of scale are present.

Average variable cost is total variable cost:

divided by output. All average measures of costs are found by dividing the respective costs by the output.

Economies of scale account for what part of a long-run average total cost curve?

downward-sloping Economies of scale imply that long-run average total cost declines as output increases.

The long-run average cost curve is typically:

downward-sloping at first but then upward-sloping. The long-run average cost curve is U-shaped because at first economies of scale reduce average cost as output rises; at some point, however, increases in output begin to produce diseconomies of scale, and so average cost increases.

Economies of scale occur when a firm's long-run average total cost curve is:

downward-sloping. Economies of scale imply that long-run average total cost declines as output increases.

If a machine cost $50,000 initially and is expected to last for 20 years but is worth $60,000 after one year because it is in short supply, an economist most likely would say that:

during the first year the machine had no cost; it provides an implicit revenue of $10,000 to the firm. he economist would take into account the increased value of the machine (but would be very unlikely to project this rate of increased value into the future).

Refer to the graph shown. The shift from SATC1 to SATC2 reflects:

economies of scale. Since long-run average total cost falls as a result of the increase in plant size, economies of scale must be present.

If a firm is able to lower total costs by specializing in marketing and distribution while outsourcing production, it is taking advantage of: less developed nations.

economies of scope.

The reason for the merger of two businesses that sell unrelated goods but can share business practices and sales forces might best be explained by:

economies of scope. Since the products are unrelated, they won't be taking advantage of economies of scale or indivisible setup costs.

The relationship between long-run and short-run average total costs is known as the:

envelope relationship. The envelope relationship implies that the long-run average total cost curve is an envelope curve to short-run average cost curves.

The law of diminishing marginal productivity implies that the marginal product of a variable input:

eventually declines. Diminishing marginal productivity occurs when the marginal product of a variable input declines. This decline need not occur immediately, however, and so the marginal product of a variable input may rise at first before it begins to decline.

The long-run average cost curve is tangent to the short-run average total cost curve at the minimum point of the short-run average total cost curve when the:

firm is experiencing constant returns to scale. According to the envelope relationship, a short-run average total cost curve is tangent to the long-run average cost curve at its minimum point only when the long-run average cost curve is horizontal. The tangency occurs on the downward-sloping part of the short-run average total cost curve when there are economies of scale or when the long-run average cost curve is downward-sloping. The tangency occurs on the upward-sloping part of the short-run average total cost curve when there are diseconomies of scale or when the long-run average cost curve is upward-sloping.

What kind of costs remain the same regardless of the level of production?

fixed

Suppose you operate a factory that produces 500 lawn mowers a week. If your weekly variable cost is $40,000 and your weekly total cost is $50,000, the average:

fixed cost of production is $20. Total fixed cost equals total cost ($50,000) minus total variable cost ($40,000), or $10,000. Since average fixed cost equals total fixed cost divided by output, average fixed cost equals $10,000/500, or $20.

If you have already signed up for a plan with your cell phone company that gives you 4,000 free minutes for $39.99 per month with a cost of $0.35 per minute for any time exceeding the limit, your marginal cost curve is:

horizontal at a marginal cost of zero up to 4,000 minutes.

Constant returns to scale are associated with a:

horizontal long-run average cost curve. Constant returns to scale occur when long-run average costs remain the same as output increases.

A production table can be used to determine:

how much output is produced from a given quantity of inputs.

Economic profit is:

implicit and explicit revenues minus implicit and explicit costs.

The difference between economic profit and accounting profit is equal to:

implicit revenues minus implicit costs. Economic profit includes all revenues and costs, even those that are difficult to measure, whereas accounting profit includes only revenues and costs that are readily observable.

The graph shown exhibits constant returns to scale:

in region b. ince long-run average cost remains constant as output increases, this range is associated with constant returns to scale.

A firm's average cost increases as it increases its output by expanding its plant and hiring additional workers (its only inputs to production). The firm's owner blames the increase in per-unit costs on the law of diminishing marginal productivity. The owner's reasoning is:

incorrect because all inputs are varied in the example. The law of diminishing marginal productivity applies only when some inputs are fixed, but that is not the case in this example.

If marginal cost is greater than average variable cost, average variable cost will:

increase as output increases. When marginal cost exceeds average variable cost, the cost of producing another unit of output exceeds average variable cost, and so average variable cost increases as output rises.

At very high levels of output, total cost tends to:

increase at an increasing rate. At very high levels of output, total cost is increasing at an increasing rate because of the law of diminishing marginal product, which implies increasing marginal cost.

Suppose a factory that produces toasters experiences a decline in its average total cost with no change in its output level. This decline might be explained by:

technological change. Technological change allows a given amount of output to be produced from fewer inputs, and so average total cost declines.

Which of the following cost curves is most often drawn with a U shape?

the marginal cost curve has a U shape because the law of diminishing marginal productivity implies that at some point marginal product begins to decrease. At this point, marginal cost begins to increase.

Implicit cost refers to:

the opportunity cost of factors of production provided by the owners of the firm

Refer to the graph shown. The marginal rate of substitution at point B is:

the same as the marginal rate of substitution at point C. The absolute value of the slope of the isoquant at point C is the same as the absolute value of the slope of the isocost line. The two isocost lines are parallel, and so they have the same slope.

Total cost is:

the sum of variable costs and fixed costs.

An economically efficient method of production produces a given level of output at the lowest possible cost.

true

At the planned output level, short-run average total cost equals long-run average total cost, but at all other points, short-run average total cost is higher than long-run average total cost.

true Since some inputs are fixed in the short run but all inputs are variable in the long run, any deviation from planned output must raise average total cost more in the short run than in the long run.

Long-run decisions are:

unconstrained since all inputs are variable. Since all inputs are variable in the long run, long-run decisions are unconstrained.

The marginal cost curve should go through the minimum points of the AVC and ATC curves in that order. The ATC hits its minimum after the AVC curve because of fixed costs.

wrong because the marginal cost curve should go through the minimum points of the AVC and ATC curves.