ECON 2113 Chapter 13

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Explicit costs require an outlay of money by the firm

true

One would expect to observe diminishing marginal product of labor when crowded office space reduces the productivity of new workers.

true

The firm's efficient scale is the quantity of output that minimizes average total cost.

true

The marginal cost of the fifth unit of output equals the total cost of five units minus the total cost of four units.

true

When a firm is able to put idle equipment to use by hiring another worker, variable costs will rise.

true

the average fixed cost curve always declines with increased levels of output

true

total revenue equals total output multiplied by price per unit of output

true

when a firm is able to put idle equipment to use by hiring another worker, variable costs will rise

true

average variable cost

variable cost divided by the quantity of output

profit

total revenue minus total cost

economic profit

total revenue minus total cost, including both explicit and implicit costs

A total-cost curve shows the relationship between the quantity of an input used and the total cost of production

false

Average fixed costs do not vary with the amount of output a firm produces.

false

Average total cost is equal to output/total costs

false

Diminishing marginal product suggests that additional units of output become less costly as more output is produced.

false

Diminishing marginal product suggests that the marginal cost of an extra worker is unchanged.

false

Economic profit is equal to total revenue minus the explicit cost of producing goods and services.

false

If marginal cost is rising, average variable cost must be falling.

false

John owns a shoe-shine business. His accountant most likely includes wages John could earn washing windows.

false

Net profit can be added to profit to obtain total revenue

false

Suppose Jan is starting up a small lemonade stand business. Variable costs for Jan's lemonade stand would include the cost of building the lemonade stand.

false

The marginal product of an input in the production process is the increase in total revenue obtained from an additional unit of that input.

false

Those things that must be forgone to acquire a good are called substitutes

false

When marginal cost is less than average total cost, average total cost is rising.

false

fixed costs can be defined as costs that vary inversely with production

false

if a firm produces nothing, total costs will be zero

false

marginal cost must rise as the quantity of output increases

false

the cost of accounting services would be regarded as an implicit cost

false

when a firm is operating at an efficient scale, average variable cost is minimized

false

when marginal cost is rising, average variable cost must be rising

false

average fixed cost

fixed cost divided by the quantity of output

implicit costs

input costs that do not require an outlay of money by the firm

explicit costs

input costs that require an outlay of money by the firm

total revenue

the amount a firm receives for the sale of its output

marginal product

the increase in output that arises from an additional unit of input

marginal cost

the increase in total cost that arises from an extra unit of production

total cost

the market value of the inputs a firm uses in a production

economies of scale

the property whereby long-run average total cost falls as the quantity of output increases

diseconomics of scale

the property whereby long-run average total cost rises as the quantity of output increases

constant returns to scale

the property whereby long-run average total cost stays the same as the quantity of output changes

diminishing marginal product

the property whereby the marginal product of an input declines as the quantity of the input increases

efficient scale

the quantity of output that minimizes average total cost

production function

the relationship between quantity of inputs used to make a good and the quantity of output of that good

average total cost

total cost divided by the quantity of output

accounting profit

total revenue minus explicit cost

Accountants are primarily interested in the flow of money into and out of firms.

true

At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost rises.

true

Average total cost is very high when a small amount of output is produced because average variable cost is high.

False

Average total cost tells us the total cost of the first unit of output, if total cost is divided evenly over all the units produced.

False

Marginal cost tells us the value of all resources used in a production process.

False

Profit is defined as net revenue minus depreciation

False

Some costs do not vary with the quantity of output produced. Those costs are called marginal costs.

False

The amount by which total cost rises when the firm produces one additional unit of output is called average cost.

False

The amount of money that a firm receives from the sale of its output is called total gross profit.

False

The efficient scale of the firm is the quantity of output that maximizes marginal product.

False

Variable cost divided by quantity produced is average total cost.

False

When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of diminishing labor.

False

An example of an implicit cost of production would be the income an entrepreneur could have earned working for someone else.

True

Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic in the short run, but not in the long run.

True

For a firm that uses labor to produce output, the production function depicts the relationship between the quantity of labor and the quantity of output.

True

The amount of money that a firm pays to buy inputs is called total cost.

True

The cost of producing an additional unit of output is the firm's marginal cost.

True

The cost of producing the typical unit of output is the firm's average total cost.

True

Total cost can be divided into two types. Those two types are fixed costs and variable costs.

True

the firm can vary the number of workers it employs, but not the size of its factory, this assumption is often realistic for a firm in the short run.

True

fixed costs

costs that do no vary with the quantity of output produced

variable costs

costs that vary with the quantity of output produced


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