Ch 7 ECON

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

$2.00

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

A = 42, E = 12

_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.

Agglomeration factors

____________ tells a firm whether it can earn profits given the price in the market.

Average cost

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

In economics, a firm that faces no competitors is referred to as _________________.

a monopoly

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.

average variable cost; fixed costs

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

costs incurred in the act of producing

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

decreasing returns to scale

The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________.

economies of agglomeration; corresponding diseconomies

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.

economies of scale; a larger factory can produce at a lower average cost than a smaller company.

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change,

Economies of scale may arise from all but one of the following. Which one is it?

government economic subsidies protect firms from competition to avoid losses.

If the firm sells 5 units at a price of $30 each, then the marginal unit produced

is subtracting from profits.

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

profits equal $40

Fixed costs are important because, at least in the ___________, the firm _______________.

short run; cannot alter them

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

In order to determine the average variable cost, the firm's variable costs are divided by _______.

the quantity of output

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals

whether the firm is earning profit if fixed costs are left out of the calculation.