Micro Final (production and cost)

marginal cost curve

shows how the cost of producing one more unit depends on the quantity that has already been produced

Marginal Cost (MC)

the extra cost incurred by producing one more unit of a product

maximum efficient scale

the highest quantity of output at which a firm achieves its minimum per-unit production costs

Minimum efficient scale

the level of output at which all economies of scale are exhausted

Average Total Cost (ATC)

total costs divided by quantity of output

accounting profit

total revenue - explicit costs

average variable cost

variable cost divided by the quantity of output produced

When marginal cost is increasing, average total cost must be increasing. A.) False B.) True

A.) False

Which of the following must be true if the short-run average total cost curve is declining? A.) Marginal cost is less than average total cost. B.) Marginal cost is less than average variable cost. C.) Marginal cost is greater than average total cost. D.) Marginal cost equals average total cost.

A.) Marginal cost is less than average total cost.

Which of the following is false? A.) The total product schedule shows the total amount of output generated as the level of the fixed input increases. B.) The marginal product of any single input is the change in total product resulting from a small change in the amount of that input used. C.) As the amount of a variable input is increased, the amount of other fixed inputs being held constant, a point ultimately will be reached beyond which marginal product will decline. This is called diminishing marginal product. D.) A firm never knowingly allows itself to reach the point where the marginal product becomes negative.

A.) The total product schedule shows the total amount of output generated as the level of the fixed input increases.

An increase in the price of raw materials will shift both the MC and the ATC curves upward. A.) True B.) False

A.) True

In the long run, firms can vary all inputs in the production process. A.) True B.) False

A.) True

If both the marginal cost and the average variable cost curves are U-shaped, at the minimum point of the average total cost curve, the marginal cost curve must be: A.) greater than average variable cost. B.) less than average variable cost. C.) equal to average variable cost. D.) at its minimum.

A.) greater than average variable cost.

What denotes the output level where economies of scale are exhausted and constant returns to scale begin? A.) minimum efficient scale B.) break-even point C.) efficient equilibrium D.) zero economic profit

A.) minimum efficient scale

A Texas oil woman would like to increase the oil produced from her oil fields. Since it takes over a year to drill new wells, she opts instead for increasing labor and other variable inputs to produce more oil from existing wells. She is making a short-run production decision. A.) True B.) False

A.) true

An example of an explicit cost of production is: A.) the cost of foregone labor earnings for an entrepreneur. B.) the cost of flour for a baker. C.) the foregone rent that could have been earned if land owned by a firm was not used as its parking lot. D.) provided by none of the above.

B.) The cost of flour for a baker

Accounting profits are calculated based upon: A.) explicit cash receipts and implicit expenditures of cash. B.) actual cash receipts and actual expenditures of cash. C.) implicit cash receipts and actual expenditures of cash. D.) opportunity costs plus explicit costs.

B.) actual cash receipts and actual expenditures of cash.

When economies of scale exist, a decrease in the level of output will lead to: A.) a decrease in cost per unit. B.) an increase in cost per unit. C.) no change in cost per unit. D.) an increase in total cost.

B.) an increase in cost per unit.

The vertical distance between the average total cost curve and the average variable cost curve equals: A.) marginal cost. B.) average fixed cost. C.) total fixed cost. D.) total variable cost.

B.) average fixed cost.

When there are diseconomies of scale in production: A.) long-run average total cost declines as output expands. B.) long-run average total cost increases as output expands. C.) marginal cost decreases as output expands. D.) none of the above

B.) long-run average total cost increases as output expands.

Economists normally assume that the goal of a firm is to: A.) sell as many units of output as possible. B.) maximize profits. C.) sell products at the highest prices possible. D.) maximize sales revenue.

B.) maximize profits.

An example of an implicit cost of production is: A.) the cost of leather used in manufacturing furniture. B.) the opportunity cost of space in your home that is used for a home office. C.) the wages paid to high school students that work in a fast-food restaurant. D.) none of the above.

B.) the opportunity cost of space in your home that is used for a home office.

Diseconomies of scale are most likely at very low levels of output. A.) False B.) True

Both

In the short run, it is impossible for an expansion of output to cause an increase in: A.) ATC. B.) AVC. C.) AFC. D.) MC.

C.) AFC

If Average variable cost (AVC) is subtracted from the Average total cost (ATC), the result is: A.) economic profit. B.) accounting profit. C.) average fixed cost. D.) marginal cost.

C.) Average Fixed Cost

Which of the following is an implicit cost to Mondo Manufacturing, Inc.? A.) Payments of wages to its office workers. B.) Property taxes. C.) Depreciation charges on company owned automobiles and trucks. D.) Rent paid for the use of equipment.

C.) Depreciation charges on company owned automobiles and trucks.

If average variable cost exceeds marginal cost, then: A.) average variable cost is increasing and the average total cost is decreasing. B.) the average variable cost is decreasing and the average total cost is increasing. C.) both the average variable and average total cost are decreasing. D.) the average variable cost is decreasing and the average total cost may be increasing or decreasing.

C.) both the average variable and average total cost are decreasing.

The marginal cost curve: A.) is a vertical line. B.) generally rises at first and then declines as output expands. C.) generally falls at first and then rises as output expands. D.) intersects the average variable cost curve from below at its maximum point.

C.) generally falls at first and then rises as output expands.

A firm can produce 840 gallons of paint per day with 6 workers, or 910 gallons per day with 7 workers. The marginal product of labor over this range of output, stated in gallons per worker per day, is A.) 140. B.) 135. C.) 130. D.) 70.

D.) 70

An economic profit of zero implies: A.) normal profit. B.) the firm is covering both explicit and implicit costs. C.) the firm's revenues are sufficient to compensate the money and time that the owners put into the business. D.) all of the above

D.) All the above

Interest paid on a bank loan by a local ice cream producer is: A.) an implicit cost for the ice cream producer. B.) considered by an accountant when calculating the cost of running the ice cream business. C.) an explicit cost for the ice cream producer. D.) both b. and c.

D.) Both B and C

According to diminishing marginal product, if all the inputs to a firm are increased in equal proportions, A.) output will increase more than in proportion to the increase in the inputs. B.) output will increase less than in proportion to the increase in the inputs. C.) output will increase exactly in proportion to the increase in the inputs. D.) The law of diminishing returns says nothing about what will happen to output when all inputs are increased in equal proportions.

D.) The law of diminishing returns says nothing about what will happen to output when all inputs are increased in equal proportions.

If both the marginal cost and the average variable cost curves are U-shaped, which of the following is true over the range of output for which the average variable cost curve has a negative slope? A.) The marginal cost curve must have a negative slope. B.) The average total cost curve must have a negative slope. C.) The marginal cost curve is below the average variable cost curve. D.) both (b) and (c) are correct.

D.) both (b) and (c) are correct.

When average total cost is decreasing as output expands: A.) average fixed cost must be increasing. B.) average variable cost must be falling. C.) marginal cost must be greater than average total cost. D.) marginal cost must be less than average total cost.

D.) marginal cost must be less than average total cost.

Explicit cost of production

Dollars that are actually paid by the producer when it produces its product (or reduction in the value of a business asset due to use of the asset to produce the product)

Implicit cost of production

In economics, an implicit cost, also called an imputed cost, implied cost, or notional cost, is the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent. It is the opposite of an explicit cost, which is borne directly.

Economic profit of zero

When economic profit is zero, a firm is earning the same as it would if its resources were employed in the next best alternative. If the economic profit is negative, firms have the incentive to leave the market because their resources would be more profitable elsewhere.

In the short run, Average Fixed Cost (AFC) is always greater than A.) ATC B.) AVC C.) MC D.) Zero

Zero

Diseconomies

an economic disadvantage such as an increase in cost arising from an increase in the size of an organization.