Chapter 13

The amount of money that a firm receives from the sale of its output is called

total revenue.

Economic profit

will never exceed accounting profit.

Economic profit is equal to (i) total revenue - (explicit costs + implicit costs). (ii) total revenue - opportunity costs. (iii) accounting profit + implicit costs.

(i) and (ii)

Marginal cost equals (i) change in total cost divided by change in quantity produced. (ii) change in variable cost divided by change in quantity produced. (iii) the average fixed cost of the current unit.

(i) and (ii)

Which of the following is an implicit cost? i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space

(i) only

Accounting profit is equal to (i) total revenue - implicit costs. (ii) total revenue - opportunity costs. (iii) economic profit + implicit costs.

(iii) only

Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is

8 units of output

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers it employs, but not the size of its factory

Marginal cost tells us the

amount by which total cost rises when output is increased by one unit.

The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is

an implicit cost

Fixed costs can be defined as costs that

are incurred even if nothing is produced.

Marginal cost is equal to average total cost when

average total cost is at its minimum.

One would expect to observe diminishing marginal product of labor when

crowded office space reduces the productivity of new workers.

The marginal product of labor is equal to the

increase in output obtained from a one unit increase in labor.

A production function is a relationship between

inputs and quantity of output

In the long run,

inputs that were fixed in the short run become variable.

Economies of scale occur when

long-run average total costs fall as output increases.

Diseconomies of scale occur when

long-run average total costs rise as output increases

When a firm's only variable input is labor, then the slope of the production function measures the

marginal product of labor

Economists normally assume that the goal of a firm is to

maximize its profit

Explicit costs

require an outlay of money by the firm

John owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?

the cost of shoe polish

For a certain firm, the number of workers hired is the only variable input. When this firm's production function is illustrated on a graph

the number of workers is measured on the horizontal axis and the quantity of output is measured on the vertical axis

Average total cost is equal to

total cost/output

Total revenue equals

total output multiplied by price per unit of output.