ECON 200 LS Production

A person who has been managing a dry cleaning store for $30,000 per year decides to open his own dry cleaning store. The expenses are $35,000 for salaries (excluding the owner's), $10,000 for supplies, $8,000 for rent, $2,000 for utilities, and $5,000 for interest on a bank loan. The implicit cost are

$30,000 *Implicit costs = entrepreneur's forgone salary = $30,000

Which of the following are the reasons for breaking average total cost into two components?

-Average variable cost is used to determine whether a firm should continue to operate or should shut down in the short run. -The constantly declining average fixed cost is apparent.

In making a decision about how much output it should produce to maximize its profits, which two pieces of information does a firm need?

-The extra benefit of producing that unit -The extra cost associated with producing an additional unit of output

In making a decision about how much output it should produce to maximize its profits, which two pieces of information does a firm need?

-The marginal revenue -The marginal cost

A person who has been managing a dry cleaning store for $30,000 per year decides to open hos own dry cleaning store. The expenses are $35,000 for salaries (excluding the owner's), $10,000 for supplies, $8,000 for rent, $2,000 for utilities, and $5,000 for interest on a bank loan. The explicit costs include

-interest on the bank loan -utilities -rent -salaries

Economies of scale can result from a variety of factors, including

-lower costs of inputs as firms purchase larger quantities. -productivity gains from more specialized labor.

Which of the following is true of economic costs?

Economic costs are defined as the sum of explicit and implicit costs.

_________________ of scale is a condition in which the long-run average total cost of production increases as production increases.

Diseconomies

______________ is an important factor in determining the true cost of an economic activity such as the production of goods and services.

Implicit cost

_______________ marginal returns is a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is greater than that of the previous variable resource.

Increasing

_______________ economic profits encourage firms to exit the market.

Negative

_______________ cost equals total fixed cost plus total variable cost.

Total

Variable cost per unit of output produced is

average variable cost. *AVC=TVC/Q

A condition in which the long-run average total cost of production remains constant as production increases is called

constant return to scale.

Monetary payments made by individuals, firms, and governments for the use of others' land, labor, capital, and entrepreneurial ability are ___________ costs.

explicit

Total revenue minus the total _____________ costs of production is accounting profit.

explicit

An opportunity cost is associated with any cost, whether it is an _____________ cost or an ________________ cost.

implicit; explicit

Total revenue minus the total _______ and total _________ costs of production is economic profit.

implicit; explicit

Minimum-efficiency scale refers to the

lowest level of output at which the long-run average total cost is minimized.

When the ______________ cost is above the _____________ cost, the average cost should be increasing.

marginal; average

A curve showing the average total cost for different levels of output when at least ____________ input of production is fixed, typically plant capacity, is the short-run average cost curve.

one

In the graph above, curve B represents the marginal product curve. Diminishing marginal returns begin to set in after the ______________ worker.

second

Being able to calculate ___________ product, average product, and marginal product is important to operate efficiently and maximize profits.

total

The total amount of output produced with a given amount of resources is known as

total product.

The price of a good times the quantity sold equals

total revenue

A curve showing the lowest average total cost possible for any given level of output when all inputs of production are ______________ is the long-run average cost curve.

variable

Total fixed cost divided by the amount of output produced is equal to

average fixed costs. *AFC = TFC/Q

Total cost divided by the amount of output produced is equal to

average total cost. *ATC = TC/Q or AFC + AVC

Costs that do not change with the amount of output produced are ____________ costs

fixed

If a company decides to produce zero units of output, it still has to pay total _________________ costs of production.

fixed

The shape of the long-run average total cost curve can differ for different types of firms, depending on

how much production it takes to reach the minimum long-run average total cost.

The opportunity costs of using owned resources are _____________ costs.

implicit

Economies of scale is a condition in which the _____________-run average total cost of production decreases as production increases.

long

Decreasing ________________ returns are a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource.

marginal

The extra or additional cost associated with the production of an additional unit of output is the ____________ cost.

marginal

The vertical distance between the average variable cost and the average total cost curves is equal to

average fixed costs. *AFC = ATC - AVC

A period of time which all inputs of production are variable is the ______________-run

long

Zero _______________ profit means that the value of economic profit is negative.

accounting

Marginal product is the

additional output produced as a result of utilizing one more unit of a variable resource.

Average product is the

amount of output per unit of a resource employed.

The short run is a period of time in which

at least one input of production is fixed.

The vertical distance between the average variable cost (AVC) and the average total cost (ATC) curves gets smaller as more output is produced, because this distance is equal to the

average fixed cost, which declines as output increases.

The fixed cost per unit is equal to

average fixed cost.

One reason for diseconomies of scale is

increasing opportunity costs.

The shape of the marginal cost curve is dependent on the

law of diminishing marginal returns.

Costs that increase as production increases and decrease as production decreases are ____________ costs.

variable

Total ___________ costs change with output, whereas total __________ costs do not.

variable; fixed

In addition to total cost, it is useful to calculate average cost because

-average cost numbers are more usable for managing. -average cost can be compared directly to the price.