Chapter 21—Production and Costs
A cost that is incurred when an actual monetary payment is made is a(n) __________ cost.
A. explicit
Minimum efficient scale refers to the
D. lowest output level at which average total costs are minimized.
The change in total cost that results from a change in output is __________ cost.
D. marginal
Refer to Exhibit 21-2. What is the average variable cost of producing 90 units of output?
A. $1.00
21-33. Refer to Situation 21-l. What will Diane's total costs be if she sells 2,500 donuts in her first week and then goes out of business? Situation 21-1 Diane's Donuts will begin selling donuts next week. Diane figures that the average variable cost to make each donut will be constant at $0.30. She has already paid $20,000 for the donut-making machinery and one year's rent.
A. $20,750
Refer to Exhibit 21-13. What dollar amounts go in blanks (K) and (L)?
A. $280; $400
Consider the following information about a business Diane opened last year: price = $10, quantity sold = 25,000; implicit cost = $55,000; explicit cost = $160,000. What was Diane's economic profit?
A. $35,000
Refer to Exhibit 21-13. What dollar amounts go in blanks (V) and (W)?
A. $50; $70
Refer to Exhibit 21-l. The numbers that go in blanks (C) and (D) are, respectively,
A. 25 and 20.
Which of the following statements is true?
A. The marginal cost curve has an upward-sloping portion to it because of the law of diminishing marginal returns.
In the long run,
A. all costs are variable costs.
If inputs are increased by 10 percent and output increases by 20 percent, then __________ are said to exist.
A. economies of scale
If a firm earns normal profit, then it has generated revenues
A. equal to the sum of implicit and explicit costs.
Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage, causing unit costs to __________.
A. greater; fall
As long as there are __________ costs, __________ profit will be greater than __________ profit.
A. implicit; accounting; economic
The law of diminishing marginal returns
A. is a short run concept.
The average-marginal rule states that if the marginal magnitude is
A. less than the average magnitude, the average magnitude falls
Refer to Exhibit 21-4. Curve A is a(n) __________ cost curve.
A. marginal
The change in output that results from changing a variable input by one unit, holding all other inputs fixed, is called the marginal __________ product of the variable input.
A. physical
Refer to Exhibit 21-5. Economies of scale are present between
A. points A and B.
If the average variable cost curve is falling,
A. the MC curve must be below it.
Refer to Exhibit 21-2. What is the average total cost of producing 120 units of output?
B. $1.83
At 100 units of output, total cost is $22,000 and total variable cost is $14,000. At 100 units of output, what is the value of average total cost, average variable cost, and average fixed cost, respectively?
B. $220; $140; $80
If explicit costs equal $40,000, implicit costs equal $95,000, and accounting profit equals $23,000, it follows that total revenue equals __________ and economic profit equals __________.
B. $63,000; -$72,000
Which of the following statements is true?
B. In the short run, changes in output can only be brought about by a change in the quantity of variable inputs.
Refer to Exhibit 21-4. Curve C is a(n) __________ cost curve.
B. average variable
A fixed input is an input whose quantity
B. cannot be changed as output changes in the short run.
If inputs are increased by 10 percent and output increases by 10 percent, then __________ are said to exist.
B. constant returns to scale
A rising marginal cost curve is a reflection of a
B. falling marginal physical product curve.
A cost of resources used in production for which no actual monetary payment is made is a(n) __________ cost.
B. implicit
The __________ hand is the metaphor used to refer to market coordination, whereas the __________ hand is the metaphor used to refer to managerial coordination.
B. invisible; visible
The long-run average total cost (LRATC) curve shows the
B. lowest unit cost at which the firm can produce any given level of output.
The "visible hand" is a metaphor used to describe
B. managerial coordination.
As the marginal physical product curve rises,
B. the marginal cost curve falls.
Refer to Exhibit 21-2. What is the average variable cost of producing 120 units of output?
C. $1.00
Refer to Exhibit 21-13. What dollar amounts go in blanks (G) and (H)?
C. $200; $30
Which of these statements is false?
C. In the short run, all inputs are fixed inputs
Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?
C. Wilson previously worked as an accountant, earning $3,000 a month.
The short run is
C. a period of time in which some inputs are fixed.
Costs that do not change with output are called __________ costs.
C. fixed
Accounting profit equals economic profit if __________ equals __________.
C. implicit costs; zero
As the marginal physical product of U.S. workers _________________, the marginal cost of goods produced in the U.S. ______________ and unit costs _____________. This makes American goods ________________ competitive in the global marketplace.
C. rises; falls; fall; more
Refer to Situation 21-l. What will Diane's approximate average fixed costs be if she sells 36,500 donuts in one year?
D. $0.55
Refer to Exhibit 21-7. The average total cost of producing 4 units of output is
D. $27.50.
Refer to Exhibit 21-7. The marginal cost of producing the seventh unit of output is
D. $5.00.
Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is
D. $6.00.
Refer to Exhibit 21-7. The total variable cost of producing 3 units is
D. $60.00.
Refer to Exhibit 21-13. What dollar amounts go in blanks (C) and (D)?
D. $66.67; $50
Consider the following information about a business Diane opened last year: price = $10, quantity sold = 25,000; implicit cost = $55,000; explicit cost = $160,000. What was Diane's accounting profit?
D. $90,000
Refer to Exhibit 21-13. What dollar amounts go in blanks (P) and (Q)?
D. $93.33; $82.50
If the "minimum efficient scale" in an industry is at 25 percent of market sales, what is the maximum number of efficient firms the economy can support in this industry?
D. 4
Which of the following statements is true?
D. An implicit cost is a cost that represents the value of resources used in production for which no actual monetary payment is made.
The marginal cost curve passes through the __________ curve at its lowest point.
D. a and b
Unit cost refers to
D. average total cost.
"As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline." This is a statement of the
D. law of diminishing marginal returns.
Diseconomies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage, causing unit costs to __________.
D. smaller; rise
Economic profit is the difference between total revenue and
D. the sum of explicit and implicit costs.
Economists Alchian and Demsetz suggest that firms are formed when
D. the sum of what individuals can produce as a team is greater than the sum of what they can produce alone.
If labor is the variable input, then marginal cost equals
D. the wage rate divided by MPP.
Refer to Exhibit 21-2. The dollar amounts that go in blanks (C) and (D) are, respectively
E. $1.00 and $1.50.
Average fixed cost
E. a and c
Average variable cost equals
E. a and c
If the government places a $2 tax on each unit of good X that is produced by Firm A, it follows that the tax will not affect __________ cost, but will affect __________ cost
E. b and c
Which of the following statements is true?
E. none of the above
Refer to Exhibit 21-5. Diseconomies of scale are present between
E. points C and D.
Which of the following statements is false?
If the MC curve is rising, the AVC curve must be rising.
