Econ quiz chapter 5

The average total cost curve is:

U-shaped -The average total costs curve falls at first because both the average variable cost curve and the average fixed cost curve are falling since the average variable cost curve will start to rise beyond some point in production volume (because of the law of diminishing returns), average total cost curve will also rise.

If the first, second, third and forth worker employed by the firm add 15, 21, 12 and 8 units of total product respectively, we can conclude that:

after the second worker marginal product declines. -At first marginal physical product increases but eventually the law of diminishing returns will cause marginal physical product to decline.

Average total cost is defined as:

total cost divided by the quantity produced. -Average total cost is found at any point of the total cost curve by dividing total cost by units of output.

The maximum output that can be produced from a set of inputs is measured by:

The production function.

Costs of production that do not change with the rate of output are:

Fixed costs

The most desirable rate of output is the one that:

Maximizes total profit. -Profit maximized when the difference between total revenue and total costs is greatest.

Economic costs are greater than accounting costs:

only if implicit costs are greater than zero. -since implicit costs are cost in which no monetary payment is made, they would not be counted in accounting costs but would be included in economic costs.

During the long run:

the firm can build or lease any size factory -unlike the short-run where only variable factors can be changed, the long run assumes that all factors of production can be changed.

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily implicit costs for the firm described above

$70

Ceteris paribus, the law of diminishing returns states that beyond some point the:

Marginal physical product of a variable input declines as more of it is used. -By varying one factor while holding all other factors of production constant less and less additional output will be produced.

The selection of the short-run rate of output is the:

Production decision.

When producing jeans, which of the following is not a variable cost in the short run?

Rent for the factory

Assume a restaurant hires an additional chef who is as qualified as the current chefs. As a result, the level of output increases but by a smaller amount than when the previous additional chef was hired. Which of the following best explains this occurrence?

The chefs are working with a fixed amount of space and equipment and they get in each other's way.

The main difference to an economist between "short-run" and "long-run" is that:

in the long-run all resources are variable where as in the short-run at least one resource is fixed. -in the long-run capital investment decisions are considered while in the short run the emphasis is on making production decisions.