Econ Exam 3: 1

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled:

$100,000.

Which of the following statements about opportunity cost is FALSE?

Opportunity cost is synonymous with explicit cost.

Which of the following statements is FALSE?

When the marginal product of labor is upward-sloping, the marginal cost curve is upward-sloping.

You own a deli. Which of the following is a decision most likely to be made in the LONG run at your deli?

You renovate the second floor of your building to increase the size of the dining room.

Profit computed without implicit costs is _____ profit.

accounting

In the long run:

all factors are variable.

The _____ cost curve is NOT affected by diminishing returns.

average fixed

(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled W represents the firm's _____ cost curve.

average total

The long-run average total cost curve is tangent to an infinite number of short-run _____ cost curves.

average total

If marginal cost is GREATER THAN average total cost:

average total cost is increasing.

(Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm is producing at point C on the ATC2 but anticipates increasing output to 225,000 units in the long run, the firm will build a _____ plant and have _____ of scale.

bigger; diseconomies

A fixed cost:

can be positive, even if the firm doesn't produce any output in the short run.

The total cost curve(or production function) gets steeper as output increases because of:

decreasing returns to the variable input.

The larger the output, the more variable input required to produce additional units. Called the _____ effect, this leads to a ______ average _____ cost.

diminishing returns; higher; variable

A firm that is able to use its inputs more efficiently as it increases production in the long run best demonstrates:

economies of scale.

Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:

economies of scale.

(Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. The marginal product of the fourth worker is _____ units.

20

(Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. Negative marginal returns begin when the _____ worker is added.

eighth

When marginal cost is BELOW average variable cost, average variable cost must be:

falling.

For most restaurants, the average total cost curve _____ at _____ levels of output, then _____ at _____ levels.

falls; low; rises; high

An input whose quantity CANNOT be changed in the short run is:

fixed.

Once diminishing returns have set in, as output increases, the total cost curve:

gets steeper.

The marginal cost curve intersects the average variable cost curve at:

its lowest point.

Economic profit is:

less than accounting profit if implicit costs exist.

When a fine caterer produces 30 catered meals, its marginal cost and average variable cost each equal $10. Therefore, assuming normally shaped cost curves, at 29 meals its marginal cost is _____ $10 and its average variable cost is _____ $10.

less than; more than

(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled V represents the firm's _____ cost curve.

marginal

The _____ is the increase in output that is produced when a firm hires an additional worker.

marginal product

The change in total output resulting from a one-unit increase in the quantity of an input used, holding the quantities of all other inputs constant, is:

marginal product.

The average total cost curve has a U shape because the ______ effect is dominant at low levels of output, and the _____ effect is dominant at high levels of output.

spreading; diminishing returns

The larger the output, the more output over which fixed cost is distributed. Called the _____ effect, this leads to a ______ average _____ cost.

spreading; lower; fixed

(Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm faced the long-run average total cost curve shown in the figure and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with:

ATC2.

You own a deli. Which of the following is most likely a fixed input at your deli?

the dinning room

If the accounting profit for a firm is negative:

the economic profit must be negative.

You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business?

the job offer you did not accept at a local catering service

Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college?

the salary that she could have earned working full-time

The marginal product of labor is:

the slope of the total product of labor curve.

The sum of fixed and variable costs is _____ cost.

total

Profit is the difference between _____ and _____.

total revenues; total costs

The total cost curve for a snowmobile dealership shows how _____ cost depends on the quantity of _____.

total; output

An input whose quantity can be changed in the short run is a(n) _____ input.

variable

In the long run, all costs are:

variable

Diminishing returns/product to an input occur:

when some inputs are fixed and some are variable.

The total product curve(or production function):

will become flatter as output increases if there are diminishing returns to the variable input.

Austin's total fixed cost is $3,600 a month at his cupcake bakery. Austin employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Austin's total cost?

$15,600

(Table: Output and Costs) Look at the table Output and Costs. When output is 4, total variable cost equals:

$48.

After earning your BA, you have to decide whether to take a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is:

$67,500

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs.

$86,004; implicit

The term diminishing returns/product refers to:

a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.