ECON 102 CH 9
Which group of costs is the most accurate example of variable cost?
Payments for materials, fuel, power, and transportation services
Which best describes economic costs?
Payments that must be made to obtain a resource
Which of the following resources can a firm easily and quickly adjust?
Raw materials Hourly labor Fuel
Which of the following are examples of fixed costs?
Rental payments Interest on a firm's debts
What happens to variable costs during the onset of production when marginal product is increasing?
They decrease with successive units of output.
What happens to fixed costs when the level of production output reaches zero?
They remain unchanged
When output is 10, what is the total cost if total fixed cost is $50 and total variable cost is $75?
$125
Which of the following costs can a firm control directly and immediately?
Marginal costs
In the short run, if a firm wants to vary its output, what resources can it adjust?
Materials Labor
Which of the following are examples of variable costs?
Materials costs Fuel costs Transportation services payments
What is marginal utility if total utility is falling?
Negative
Variable costs change with the level of _______
output
A firm cannot avoid paying fixed costs in the ____________ run.
short
What is the total revenue if the economic profit is $24,000 and the economic costs are $96,000?
$120,000
What is the marginal cost when output changes from 300 to 301 units and total cost rises from $400 to $500?
$100
If economic cost is $96,000 and total revenue is $120,000, what is the economic profit?
$24,000
If at 10 units of output, total fixed cost is $10 and total variable cost is $16, what is total cost?
$26
If total cost rises from $300 to $700 when one additional unit of output is produced, what is the marginal cost?
$400
Your company's total sales revenue for the month is $150,000; the costs to produce your products are $12,000 for rent, $6,000 for utilities, and $42,000 for employee wages. What is your accounting profit?
$90,000
If the change in total product is 10 units and the change in labor input is 1, what is marginal product?
10
What is the average product If total product is 30 and there are 3 units of labor?
10
A company has three workers. It adds an additional laborer and its total product increases by 21. What is the company's marginal product?
21
If total product is 50 and the units of labor used is 10, then the average product is
5
Which of the following explain the concept of explicit costs?
A firm's monetary payments made for the use of resources owned by others. A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.
What is the difference between accounting profit and economic profit?
Accounting profit equals total revenue less explicit costs. Economic profit equals total revenue less economic costs (explicit and implicit).
Which industry requires the most time for its firms to alter plant capacity?
Aircraft manufacturing
Which of the following are types of resources that require more time for a firm to adjust, given a change in demand?
Amount of machinery Size of the factory
What happens to average product when marginal product exceeds it?
Average product continues to rise.
Which of the following is true where the marginal product curve intersects the average product curve?
Average product is at its maximum.
What happens to marginal product when total product is increasing but at a decreasing rate?
Marginal product is positive but falling.
__________profit is the firm's total revenue less its explicit costs, whereas ____________profit is the firm's total revenue less economic costs (explicit and implicit)
B1: Accounting B2: economic
The size of the factory, the amount of machinery and equipment, and other capital resources define __________________ _______________
B1: Plant B2: Size
Total product goes through three phases: It __________ initially at an increasing rate; then it increases but at a diminishing rate; finally, after reaching a maximum, it ____________.
B1: rises B2: declines
A company hiring an entire shift of workers is an example of a(n) _________ whereas installing new equipment is an example of a(n) _________-run adjustment.
B1: short B2: long
Why does marginal product eventually diminish as units of labor are added?
Because the number of workers increases relative to the amount of capital equipment
Which of the following illustrate the concept of a short-run adjustment?
Boeing adds an entire shift of workers. Boeing hires 100 extra workers for one of its commercial airline plants.
How is total cost calculated?
By adding total fixed cost and total variable cost
Which of the following best describes how a consumer's demand schedule or curve can be derived?
By considering alternative prices at which a good or service might be sold and then determining the quantity a consumer will purchase
How is marginal cost (MC) calculated?
By dividing the change in total cost by the change in output
What happens to marginal product when total product is increasing at an increasing rate?
Marginal product is rising.
Which best characterizes variable costs?
Costs that change with the level of output
A time period during which a firm can adjust the quantities of all the resources that it employs, including plant capacity, is known as which of the following?
Long run
By using economies of scale, successful start-up firms are able to shift their short-run cost curves in which directions?
Downward and to the right
Which is another term for average product?
Labor productivity
What is the term for the extra cost of producing one more unit of output?
Marginal cost
Subtracting explicit and implicit costs from total revenue yields which of the following?
Economic profit
Subtracting implicit costs from accounting profit yields which of the following?
Economic profit
__________costs are the monetary payments a firm makes to purchase resources from others.
Explicit
When a firm considers its economic costs, it considers which of the following?
Explicit and implicit costs All opportunity costs of resources used
True or false: Economic costs equal explicit costs minus implicit costs.
False
_________ costs are part of the simple existence of a firm's plant and must be paid even when output is zero.
Fixed
In the short run, a business manager is unable to alter which of the following?
Fixed costs
Determining normal profit involves estimating which of the following?
Forgone entrepreneurial income
Which of the following are examples of implicit costs?
Forgone rent Forgone wages
What type of opportunity cost does a firm incur when it uses resources that it already possesses instead of selling them for cash?
Implicit
What happens to average product as additional units of labor are added to a fixed plant?
It increases, reaches a maximum, and then decreases.
Which of the following is true regarding a firm's plant capacity?
It is fixed in the short run.
Which of the following are types of resources that require more time for a firm to adjust, given a change in demand?
Size of the factory Amount of machinery
What are the components of plant capacity?
Size of the factory building Amount of machinery and equipment
How is marginal product (MP) defined?
The extra output or added product associated with adding a unit of a variable resource
Which best describes average product (AP)?
The output per unit of labor input
Which of the following are examples of a long-run adjustment period?
The three years it takes an oil refining company to build a new plant The two days it takes a t-shirt maker to add sewing machines and silk-screen printers
What is the definition of total product (TP)?
The total quantity, or total output, of a particular good or service produced
______________ cost is the sum of fixed cost and variable cost at each level of output.
Total
What is the term for the total quantity of a specific good produced?
Total product
What is the definition of economic profit?
Total revenue minus economic costs (explicit and implicit)
True or false: Hourly labor, raw materials, and fuel are examples of resources a firm can easily adjust
True
True or false: Implicit costs are the firm's opportunity costs of using its self-owned, self-employed resources
True
True or false: The short run and the long run are conceptual periods rather than calendar time periods.
True
Which of the following would incur an explicit cost?
Utility usage Raw materials Labor services
In microeconomics, the long run is also known as which of the following?
Variable-plant period
A(n) ______ profit is equal to total revenue less explicit costs.
accounting
Generally speaking, there are two types of calculable profits. Of these,_____________ profit is what remains after a firm has paid its explicit costs.
accounting
the law of diminishing returns assumes that ______.
all units of labor input are of equal quality
In a manufacturing plant with no labor, adding labor increases output and marginal product. However, at some point increasing labor will no longer increase output at the same rate. Adding even more labor eventually causes marginal product to decline, because there will simply not be enough space for so many workers to work. This is an example of the law of _____________ returns.
diminishing
The law of ______ returns states that as successive units of a variable resource are added to a fixed resource, beyond some point, the marginal product will decline.
diminishing
A farmer cultivates a cornfield by fertilizing and increases the farm's yield to 50 bushels per acre. Additional cultivation increases the yield but at a decreasing rate. At some point, additional cultivation will not lead to any additional output per acre. This is an example of the law of ______.
diminishing returns
Assuming technology and production techniques are fixed and cannot change, if beyond some point of production a firm experiences declining units of additional output with each additional unit of labor input, then the firm is experiencing the effects of the law of ______.
diminishing returns
A firm's__________ costs are the explicit and implicit costs of the resources it has used.
economic
The ______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use.
economic
Total__________ costs equal explicit costs plus implicit costs.
economic or opportunity
Accounting profit is what remains after a firm has paid its _______ costs.
explicit
A firm's monetary payments to those who supply transportation services is an example of ______. Multiple choice question.
explicit costs
A firm's insurance premiums are generally considered _________ costs
fixed
Which costs do not vary with changes in output?
fixed
Forgone entrepreneurial income is an example of a(n) ______.
implicit cost
Later in a production cycle, as diminishing returns are encountered, variable costs ______ for each additional unit of output.
increase by increasing amounts
When total product declines, marginal product ______.
is negative
A firm's decision about what output level to produce is typically a ______ decision.
marginal
__________ product is the change in total product divided by the change in labor input.
marginal
Average product declines when ______.
marginal product is less than average product
What does it mean to the entrepreneur when economic profit is zero?
the entrepreneur is covering all explicit and implicit costs, including a normal profit.
At the point on a graph where total product (Q) is zero, total cost is equal to ______.
total fixed cost
Marginal product is the slope of the ______ curve.
total product
Reginald buys a six-pack of soda. The amount of satisfaction he derives from his purchase is described in terms of ______.
total utility
When viewed on a graph, total variable cost is measured ______ at each level of output from the X axis.
vertically
How can a business manager control variable costs in the short run?
y altering levels of production
When total product is at its maximum, marginal product is ______.
zero
When total revenue earned by an entrepreneur is equal to the sum of explicit and implicit costs, then the entrepreneur earns a(n) ______.
zero economic profit