Microeconomics Chapter 7

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

rent of space for the gallery

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output

Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?

the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

______________ include all of the costs of production that increase with the quantity produced.

Variable costs

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.

average variable cost; fixed costs

The ______________ of all firms can be broken down into some common underlying patterns.

cost structure

A situation where the level of output, scale and average costs are all rising is called

decreasing returns to scale AND diseconomies to scale

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

diseconomies of scale

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

do so regardless of what type of competition exists in a market.

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change,

If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

loss of $5

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

$2

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

$2.43

In the US economy, nearly half of all the workers employed by private firms work at

18,000 large firms that employ more than 500 workers.