Ch 8 ECON

implicit costs include

opportunity cost of time and capital provided by the owners of the firm

total product is increasing at an increasing rate, then marginal price will

rise

when marginal product is greater than average product, average product___

rises

f the minimum efficient scale (MES) in an industry is 20 percent of the total consumption of a product, how many MES plants could be supported profitably in that industry?

5

In the long run a firm will choose a plant size that has the: A: Minimum average total cost of producing the target level of output B: Minimum of average fixed costs C: Maximum level of resource use per unit of the total product of output D: Capacity to produce the largest quantity of the product

A: Minimum average total cost of producing the target level of output

The marginal product of labor curve shows the change in total product resulting from a: A: One-unit increase in the quantity of a particular resource used, holding constant other resources B" One-unit increase in the quantity of a particular resource used, letting other resources vary C: Change in the cost of a fixed resource D: Change in the cost of a variable resource

A: One-unit increase in the quantity of a particular resource used, holding constant other resources

ATC equation

ATC = AFC + AVC

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there: A: Are diseconomies of scale B: Are constant returns to scale C: Is a minimum efficient scale D: Are economies of scale

B: Are constant returns to scale

Which is not a fixed cost? A: Monthly rent of $1,000 contractually specified in a one-year lease B: An attorney's retainer of $50,000 per year C: A worker's wage of $15 per hour D: An insurance premium of $50 per year, paid last month

C: A worker's wage of $15 per hour

Normal profits are:

Considered an implicit cost by economists

fixed costs

Costs that do not vary with the quantity of output produced

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assemblterm-0y line basis? A: change in the production to a redesigned, new model car B: An increase in the amount of aluminum the firm buys C: An increase in the number of shifts of workers from two to three D: A change in the production managers of the assembly line

D: A change in the production to a redesigned, new model car

Which would be an implicit cost for a firm? The cost: A: Of worker wages and salaries for the firm B: Paid for leasing a building for the firm C: Paid for production supplies for the firm D: Of wages foregone by the owner of the firm

D: Of wages foregone by the owner of the firm

If all resources used in the production of a product are increased by 5 percent and output increases by more than 5 percent, then the firm is experiencing:

Economies of scale

The law of diminishing returns implies:

Eventually, the more hours you spend studying per day, the less you will learn with each added hour

The term diseconomies of scale is reflected in: Increasing short-run marginal costs Decreasing long-run prices Decreasing short-run average costs Increasing long-run average costs

Increasing long-run average costs

What is true about marginal product if total product is maximized?

Marginal product equals zero.

constant economies of scale

Occurs when the firms per-unit costs do not change as output changes.

minimum efficient scale (MES)

The first lowest point on the economies of scale -the smallest production

When the Defense Department ordered 132 new airplanes, the cost per plane was estimated to be $580 million. A cut in the order to 75 planes increased the per plane cost to $800 million. This change in per unit cost can be explained by: The loss of economies of scale An increase in fixed cost A move to minimum efficient scale The law of diminishing returns

The loss of economies of scale

At the Amarillo Piano Company, the average product of labor equals 5, regardless of how much labor is used. We can say that:

The marginal product of labor is 5 regardless of how many workers are hired

explicit costs

The monetary payment made by a firm to an outsider to obtain a resource.

average product (AP)

The total output produced per unit of a resource employed Average Product = Total Product/ Units of Variable Factor Input

Over the range of positive, but diminishing, marginal returns for an input, the total product curve increases at a decreasing rate. True False

True: Over the range of positive, but diminishing, marginal returns for an inputs, the total product curve rises at a decreasing rate

law of diminishing returns

When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.

sunk cost

a cost that has already been paid and cannot be recovered -old sports -piano lessons (stopped playing)

economic profit

a firm's total revenue minus its explicit and implicit costs

decreasing marginal returns

a level of production in which the marginal product of labor decreases as the number of workers increases

increasing marginal returns

a level of production in which the marginal product of labor increases as the number of workers increases

The vertical distance between ATC and AVC measures

average fixed cost

as output increase variable costs increase at a _____ rate and then increase at an ______ rate

decreasing increasing

total variable cost curve increases at a ____ rate and then it increases at an _____ rate

decreasing . increasing

as output increases fixed costs

do not change

total product is increasing at an decreasing rate, then marginal price will

fall

when marginal product is less than average product, average product ___

falls

Short Run Production Costs

fixed costs (TFC): costs that do not vary with output. variable costs (TVC): costs that do vary with output. total cost (TC): sum of TFC and TVC.

total cost

fixed costs plus variable costs

lemonade stand shoe repair

hit MES quick -not a lot of fixed cost

economic costs can be ___ costs and ___ costs

implicit explicit

implicit costs

input costs that do not require an outlay of money by the firm

normal profit

is an implicit cost and is the minimum payment that entrepreneurs must receive for performing the entrepreneurial functions for the firm

one firm in the industry and requires huge fixed investment -sunk cost

natural monopoly

when total product declines then marginal product is

negative

negative marginal returns

occur when the marginal product of labor becomes negative (decreases)

natural monopoly

only one company exists in the market

explicit costs do not inclue

opportunity costs

costs of production change as a firm's _____ changes in the short and long run

output

If you see a MC curve than it is a

short run total cost curve

In the short run, the average fixed costs of production: A: Decrease as output increases B: Increase as output increases C: May increase or decrease depending on the average variable cost D: Decrease and then increase as output increases

A: Decrease as output increases

Implicit costs are:

"payments" for self-employed resources

Jon Brooks quit his job in a bicycle shop, where he earned $15,000 per year, to become a graduate student in economics. At the university he attended, he spent $2,000 on books, $1,000 on cough medicine, and earned $12,000 as an economics teaching-assistant. What were Jon's economic costs while attending college?

$18,000

At an output level of 50 units per day a firm has average total costs of $60 and average variable costs of $35. Its total fixed costs are: $925 $1,250 $1,750 $3,000

1250 fixed + variable = total $60 - $35 = $25 25 x 50 = $1250

A firm is encountering increasing returns to scale when it increases all of its inputs by 20 percent and its output increases by:

25 percent.

short-run average cost (SRAC) curve

the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs

marginal product (MP)

the change in total output of a good that results from a one-unit change in input Marginal Product = Change in Output/ Change in Input

short run

the period of time during which at least one of a firm's inputs is fixed (fixed)

economies of scale

the property whereby long-run average total cost falls as the quantity of output increases

diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

long run

the time period in which all inputs can be varied (variable)

Total Variable Cost (TVC)

the total of all costs that vary with output in the short run

economic cost

the value of all resources used to produce a product; opportunity cost

total product (TP)

total output produced by the firm

The short-run marginal-cost curve is upward-sloping because of the law of diminishing marginal returns. True False

true

short run plants can not ____

vary plant size but can vary output by quantity of variable resources it employs

opportunity cost

whatever must be given up to obtain some item