Microeconomics Chapter 11, Chapter 11 Quiz

What are implicit​ costs? An implicit cost is

a nonmonetary opportunity cost.

What is the law of diminishing​ returns? The law of diminishing returns states that Does it apply in the long​ run?

adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline. No

Fixed Input

an input whose quantity is fixed for a period of time and cannot be varied (for example, land).

Which of the following is most likely to a variable cost for a business​ firm?

cost of shipping products

Average cost:

cost/unit

Economies of scale happen when the​ firm's long run average total cost​ ________ as output increases.

decreases

As the level of output​ increases, what happens to the difference between the value of average total cost and average variable​ cost? As the level of output​ increases, the difference between the value of average total cost and average variable cost

decreases because average fixed cost decreases as output increases.

Economic cost

expect cost + implicit cost

TFC

expenditures and implicit costs on fixed input - would include

For Jill​ Johnson's pizza​ restaurant, explain whether each of the following is a fixed or variable cost. The payment she makes on her fire insurance policy is a ___ cost

fixed

The lease payment she makes to her landlord who owns the building where her store is located is a ____ cost

fixed

The​ $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a ______ cost.

fixed

Any cost that remains unchanged as output changes represents a​ firm's

fixed cost

Firms experience economies of scale for several reasons. What is one such​ reason? A firm might experience economies of scale because

large firms may be able to purchase inputs at lower costs than smaller competitors

When the average product of labor is increasing​, the average product of labor is ________ the marginal product of​ labor, and when the average product of labor is decreasing​, the average product of labor is _______ the marginal product of labor.

less than ​, greater than

Marginal product:

the additional quantity of output produced by using one more unit of that input.

What does the​ short-run production function hold​ constant? A​ short-run production function holds constant

the amount of capital

Demising returns to an input:

the effect observed when an increase in the quantity of an input, while holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.

In​ economics, the best definition of technology is

the process a firm uses to turn inputs into outputs.

The payment she makes to buy pizza dough is a _____ cost

variable

How are implicit costs different from explicit​ costs?

An explicit cost is a cost that involves spending​ money, while an implicit cost is a nonmonetary cost.

Average product

Ap=Tp/Quantity of Variable input

Average fixed cost

AFC=TFC/Q

Marginal product of labor

The additional output a firm produces as a result of hiring one more worker.

Which of the following is true of the relationship between the average product of labor and the marginal product of labor

Whenever the marginal product of labor is greater than the average product of​ labor, the average product of labor must be increasing.

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or​ factory?

Firms have difficulty coordinating production.

What is the distinction between the economic short run and the economic long​ run?

In the short​ run, at least one input is​ fixed, but in the long​ run, the firm can vary all inputs.

What is the difference between the short run and the long​ run?

In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology.

Short run

The period of time during which at least one of a​ firm's inputs is fixed.

Long run

The period of time in which a firm can vary all its​ inputs, adopt new​ technology, and increase or decrease the size of its physical plant.

Average product of labor

The total output produced by a firm divided by the quantity of workers.

Is it possible for average total cost to be decreasing over a range of output where marginal cost is​ increasing? Briefly explain

Yes. If marginal cost is less than average total​ cost, then average total cost will be decreasing.

The marginal cost of production shows the change in a​ firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost​ curve? ​Graphically, the marginal cost curve is

a U​ shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.

Variable cost

a cost that depends on the quantity of output produced; the cost of a variable input.

Fixed cost

a cost that does not depend on the quantity of output produced; the cost of a fixed input.

Total productive curve:

a graphical representation of the production function, showing how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.

Total cost curve

a graphical representation of the total cost, showing how total cost depends on the quantity of output.

Long run average total cost curve:

a graphical representation showing the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.

Your company incurs a cost for factory rent​, ​which, in the short​ run, is fixed. What happens to this cost in the long​ run? In the long​ run, the cost of factory rent

becomes a variable cost.

Further, positive technological change is defined as

being able to produce more output using the same inputs., being able to produce the same output using fewer inputs.

Suppose a​ firm's average total cost curve is decreasing with output. What can be said of its marginal cost​ curve? The​ firm's marginal cost curve must be

below the average total cost curve.

TVC is determined

from production function and prices of the variables

What is the production​ function? The production function is the relationship between

he inputs employed by a firm and the maximum output it can produce with those inputs.

If the​ firm's marginal costs are​ $5 at every level of​ output, what shape will the​ firm's average total cost​ have? The​ firm's average total cost curve will be ______

horizontal

What is a production​ function? A​ firm's production function is best described as

illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.

The​ short-run average cost can never be less the​ long-run average costs because

in the long​ run, all inputs are adjusted including the ones that are fixed in the short run.

The law of diminishing returns applies

in the short run.

The federal government starts to levy a​ $20 per passenger carbon emissions tax on all commercial air travel. Marginal cost would __________, average variable cost would _______, average fixed cost would ______, and average total cost would ______.

increase; increase; remain unchanged; increase

When the marginal product of labor is greater than the average product of​ labor, then the average product of labor must be

increasing

Which of the following is most likely to be a fixed cost for a​ farmer?

insurance premiums on property

Increasing returns to scale:

long-run average total cost declines as output increases (also referred to as economies of scale).

Decreasing return to scale:

long-run average total cost increases as output increases (also known as diseconomies of scale).

Constant returns to scale

long-run average total cost is constant as output increases.

The marginal cost curve intersects both the average variable cost and the average total cost curves at their _____ points

minimum

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the

production function.

Southwest decides on an​ across-the-board 10 percent cut in executive salaries. Marginal cost would _______, average variable cost would _______, average fixed cost would ______, and average total cost would___________.

remain unchanged; remain unchanged; decreased; decreased

Suppose Sheri owns a restaurant that serves pizza using three​ inputs: workers, restaurant space​ (and layout), and ovens. If workers are fixed​, restaurant space​ (and layout) is fixed​, and ovens are variable​, then Sheri is producing pizza in the

short run

The law of diminishing returns states

that adding more of a variable​ input, such as​ labor, to the same amount of a fixed​ input, such as​ capital, will eventually cause the marginal product of the variable input to decline. In this​ case, the marginal product of labor begins to decline when the fourth worker is hired.

Production function:

the relationship between the quantity of inputs a firm uses and the quantity of output it produces.

Long run

the time period in which all inputs can be varied.

Short run

the time period in which at least one input is fixed.

What is the difference between total cost and variable cost in the long​ run? In the long​ run,

the total cost of production equals the variable cost of production.

Which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long​ run, when no inputs are​ fixed?

the​ long-run average cost curve

VC

total expenditures on viable inputs e.g. raw materials

The wages she pays her workers is a ____ cost

variable

Any cost that changes as output changes represents a​ firm's

variable cost.

In the short​ run, at least one input is​ fixed, but in the long​ run, the firm can vary all inputs.

variable costs

Economies of scale occur

when a​ firm's long-run average costs decrease with output.

What are diseconomies of​ scale? Diseconomies of scale is

when a​ firm's long-run average costs increase with output.

Suppose that last semester your semester GPA was 1.90 and your resulting cumulative GPA was 2.59. ​Next, suppose that this semester your semester GPA will be 2.00. If​ so, then your cumulative GPA

will decrease because your​ "marginal" GPA will be below your cumulative GPA.

The GPA you earn in a particular semester is your​ ________ GPA, and your cumulative GPA for all completed semesters is your​ ________ GPA.

​marginal; average

What is the difference between the average cost of production​ (ATC) and marginal cost of production​ (MC)?

ATC=TC/Q​; MC=ΔTC/ΔQ.

How do specialization and division of labor typically affect the marginal product of​ labor? In the initial stages of​ production, specialization and division of labor lead to an increasing marginal product for​ workers,

allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently.

variable input

an input whose quantity the firm can vary at any time (for example, labor).

What is the difference in the short run and the long​ run? In the short​ run,

at least one of the​ firm's inputs is​ fixed, while in the long​ run, the firm is able to vary all its​ inputs, adopt new​ technology, and change the size of its physical plant.