ECON-2302: Chapter 7 (Production and Costs)

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

$1

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

$2

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

$2.43

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

In economics, a firm that faces no competitors is referred to as _________________.

a monopoly

The ______________ of all firms can be broken down into some common underlying patterns.

cost structure

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.

economies of scale; a larger factory can produce at a lower average cost than a smaller company

The economies-of-scale curve is a long-run average cost curve, because

it allows all factors of production to change.

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

monopolistic competition

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue