chapter 11
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.
Which of the following are examples of a firm experiencing positive technological change? a. A firm is able to cut each worker's wage rate by 10 percent and still produce the same level of output. This ____ an example of positive technological change. b. A training program makes a firm's workers more productive. This ___ an example of positive technological change. C. An exercise program makes a firm's workers more healthy and productive. This ___ not an example of positive technological change. d. A firm cuts its workforce and is able to maintain its initial level of output. This ____ an example of positive technological change. e. A firm rearranges the layout of its factory and finds that by using its initial set of inputs, it can produce exactly as much as before. This ____ an example of positive technological change.
is not is is is is not
The marginal cost curve intersects both the average variable cost and the average total cost curves at their ____ points.
minimum
What is minimum efficient scale? Minimum efficient scale is What is likely to happen in the long run to firms that do not reach minimum efficient scale? A firm that does not reach its minimum efficient scale
the level of output at which the long−run average cost of production no longer decreases with output. will lose money if it remains in business.
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. Your answer is correct. D.
Economies of scale occur For which of the following reason(s) may firms experience economies of scale?
when a firm's long-run average costs decrease with output. Both managers and workers may become more specialized and hence more productive as output expands. Large firms may be able to purchase inputs at lower costs than smaller competitors; they can also borrow money at a lower interest rate. Firm's production may increase with a smaller proportional increase in at least one input. All of the above.
What are diseconomies of scale? Diseconomies of scale is What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory?
when a firm's long-run average costs increase with output Firms have difficulty coordinating production.
Explain why the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum. The marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum because
when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the average, it pulls the average up
Sally looks at her college transcript and says to you, "How is this possible? My grade point average (GPA) for this semester's courses is higher than my GPA for last semester's courses, but my cumulative GPA still went down from last semester to this semester." Explain to Sally how this is possible.
Sally's GPA for this semester is lower than her cumulative GPA
Suppose the total cost of producing 5,000 tennis balls is $50,000, and the fixed cost is $10,000. What is the variable cost? When output is 5,000, what is the average fixed cost? Assuming that the cost curves have the usual shape, the dollar difference between average total costs and average variable costs ____ as output increases
40000 $8 2 decreases
List the errors in the graph to the right (where AFC is average fixed cost, AVC is average variable cost, ATC is average total cost, and MC is marginal cost).
AFC should be MC, ATC should be AVC, and AVC should be ATC.
What is the difference between the average cost of production (ATC) and marginal cost of production (MC)?
ATC = TC/Q; MC =ΔTC/ΔQ.
Devra Gartenstein, a restaurant owner, made the following observation about preparing food: "Cooks become increasingly less productive as a kitchen becomes increasingly crowded." Source: Devra Gartenstein, "Law of Diminishing Marginal Returns in Restaurant Operations," smallbusiness.chron.com. What do economists call the problem she is describing? What are its implications for the marginal product of labor for cooks? Do restaurant owners have a solution to this problem in the long run? Briefly explain.
Diminishing marginal returns, where additional cooks produce less additional output. Yes, restaurant owners can vary the size, or number, of kitchens.
What is the difference between the short run and the long run? Is the amount of time that separates the short run from the long run the same for every firm?
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. no
Is it possible for technological change to be negative? If so, give an example.
It is possible for technological change to be negative. An example is when a firm hires less−skilled workers
What is the difference between technology and technological change?
Technology is the process of using inputs to make output, while technological change is when a firm is able to produce more output using the same inputs.
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.
What is negative technological change? Negative technological change is when
a firm produces less output with the same inputs
What are implicit costs? An implicit cost is How are implicit costs different from explicit costs?
a nonmonetary opportunity cost. An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary 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
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.
Firms experience economies of scale. for several reasons. What is one such reason? A firm might experience economies of scale because
as a firm expands, it may be able to borrow money more inexpensively.
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.
A book providing advice to entrepreneurs describes some business costs as being "the amount of money that will go out even if none at all comes in." Source: Tom Hodgkinson, Business for Bohemians: Live Well, Make Money, New York: The Overlook Press, 2018, p. 40. a. The author isdescribing a business's ____ cost Which of the following is an example of this type of cost?
fixed rent for a store or warehouse
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 The payment she makes to buy pizza dough is a ___ cost The wages she pays her workers is a _____ cost. The lease payment she makes to her landlord who owns the building where her store is located is a ___ cost The $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a ____ cost
fixed variable variable fixed fixed
Any cost that remains unchanged as output changes represents a firm's Any cost that changes as output changes represents a firm's Which of the following is most likely to be a fixed cost for a farmer? Which of the following is most likely to a variable cost for a business firm?
fixed cost variable cost. insurance premiums on property cost of shipping products
