econ quiz chapter 7 and 13

explicit cost

requires an outlay of money e.g. paying wages to workers

two reasons for the fall in CS

1) Fall in Cs due to buyers leaving the market 2) Fall in CS due to remaining buyers paying higher P

1. A production function is a relationship between inputs and a. quantity of output. b. revenue. c. costs. d. profit.

a

1. Marginal cost equals (i) change in total cost divided by change in quantity produced. (ii) change in variable cost divided by change in quantity produced. (iii) the average fixed cost of the current unit. a. (i) and (ii) only b. (ii) and (iii) only c. (i) only d. (i), (ii), and (iii)

a

1. The firm's efficient scale is the quantity of output that minimizes a. average total cost. b. average fixed cost. c. average variable cost. d. marginal cost.

a

1. When comparing short-run average total cost with long-run average total cost at a given level of output, a. short-run average total cost is typically above long-run average total cost. b. short-run average total cost is typically the same as long-run average total cost. c. short-run average total cost is typically below long-run average total cost. d. the relationship between short-run and long-run average total cost follows no clear pattern.

a

1. Diminishing marginal product suggests that a. additional units of output become less costly as more output is produced. b. marginal cost is upward sloping. c. the firm is at full capacity. d. adding additional workers will lower total cost.

b

1. Economies of scale occur when a firm's a. marginal costs are constant as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. marginal costs are equal to average total costs for all levels of output.

b

1. Firms may experience diseconomies of scale when a. they are too small to take advantage of specialization. b. large management structures are bureaucratic and inefficient. c. there are too few employees, and managers do not have enough to do. d. average fixed costs begin to rise again.

b

1. n the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

b

1. Which of the following statements is not correct? a. Fixed costs are constant. b. Variable costs change as output changes. c. Average fixed costs are constant. d. Average total costs are typically U-shaped.

c

1. The average-total-cost curve intersects a. average fixed cost at the minimum of average total cost. b. average variable cost at the minimum of average total cost. c. marginal cost at the minimum of average total cost. d. marginal cost at the minimum of marginal cost.

c

When calculating a firm's profit, an economist will subtract only a. explicit costs from total revenue because these are the only costs that can be measured explicitly. b. implicit costs from total revenue because these include both the costs that can be directly measured as well as the costs that can be indirectly measured. c. the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm. d. the marginal cost because the cost of the next unit is the only relevant cost.

c

Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business a: (i) and (ii) only b: (iv) only c: (iii) and (iv) only d: (i), (ii), (iii), and (iv)

c: (iii) and (iv) only

total surplus

cs+ps

1. For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a. the unemployment insurance premium that the firm pays to the state of Missouri that is calculated based on the number of worker-hours that the firm uses b. the cost of the steel that is used in producing automobiles c. the cost of the electricity of running the machines on the factory floor d. All of the above are correct.

d

1. How long does it take a firm to go from the short run to the long run? a. six months b. one year c. two years d. It depends on the nature of the firm.

d

1. In the short run, a firm incurs fixed costs a. only if it incurs variable costs. b. only if it produces no output. c. only if it produces a positive quantity of output. d. whether it produces output or not.

d

1. The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor. ANS: D

d

1. Which of the following explains why long-run average cost at first decreases as output increases? a. diseconomies of scale b. less-efficient use of inputs c. fixed costs becoming spread out over more units of output d. gains from specialization of inputs

d

1. Which of the following statements is correct? a. If marginal cost is rising, then average total cost is rising. b. If marginal cost is rising, then average variable cost is rising. c. If average variable cost is rising, then marginal cost is minimized. d. If average total cost is rising, then marginal cost is greater than average total cost.

d

implicit costs

does not require cash outlay e.g the opportunity cost of the owner's time

importance of mpl

helps the boss decide if he should hire another worker

allocation of resources

how much of each good is produced which producers produce it which consumers consume it

Willingness to pay (WTP)

maximum amount the buyer will pay for that good. it measures how much the buyer values the good.

welfare economics

studies how the allocation of resources affects economic well-being.

producer surplus

the amount a seller is paid for a good minus the seller's cost

consumer surplus

the amount the buyer is willing to pay minus the amount the buyer actually pays

marginal buyer

the buyer who would leave the market if price were any higher

which buyers consumer the good?

the buyers who value the good most highly are the ones who consume it

marginal product

the increase in output arising from an additional unit of that input, holding all other inputs constant change in Q/ change in L

diminishing marginal product

the marginal product of an input declines at the quantity of the input increases (other things equal)

why mpl diminishes

the quantity of the input increases, more workers are being added and creates less productivity

efficient scale

the quantity that minimizes ATC

marginal seller

the seller who would leave market if the price were any lower

who sellers produce the good?

the sellers with the lowest cost produce the good

cost

the value of everything a seller must give up to produce a good (opp. cost) it is a measure of willingness to sell

profit

total revenue - total cost

accounting profit

total revenue minus explicit cost (ignores implicit costs which makes it higher)

economic profit

total revenue minus total costs (explicit/implicit)