Microeconomics Exam 2 Chapter 11

False

As output increases, the distance between average total cost and average variable cost increases. True or False

short run

Economists refer to the _____ as a period of time during which at least one of a firm's inputs is fixed.

$12

If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm's average fixed cost of production if it expands output to 25 units. [Hint: Variable cost is $(1000-700)=$300. Divide it by quantity]

$700

If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is [Hint: average variable cost = $50-$15=$35. So the total variable cost for 20 units is 20 times $35]

diseconomies of scale

If, when a firm doubles all its inputs, its average cost of production increases, then production displays

of economics and diseconomies of scale

Long-run cost curves are U-shaped because

dividing the change in total cost by the change in output.

Marginal cost is calculated for a particular increase in output by

change in total cost divided by the change in output.

Marginal cost is equal to the

technology; input prices

Suppose a firm has determined it wants to produce a particular level of output. What determines the cost of that output?

equals total cost of production divided by the level of output.

The average total cost of production

minimum efficient scale

The lowest level of output at which all economies of scale are exhausted is known as the

True

The short run is the time period during which a firm has at least one input fixed. True or False

$2.40

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers? [Hint: Total fixed cost divided by output, so, $120/50]

$340

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total cost per day when she produces 50 gyros using two workers? [Hint: Total cost =total variable cost +total fixed cost. Total variable cost is $220 from above. Total fixed cost is $120. So add them up. ]

$220

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total variable cost per day when she produces 50 gyros using two workers? [Hint: total Variable cost is the cost of ingredients for making 50 Gyros plus cost of hiring 2 workers for that = $(2 time 50 + 60 times 2) = $220]

constant returns to scale

When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays

C. AFC + AVC = ATC

Which of the following equations is correct? A) AVC - ATC = AFC B) AVC + ATC = AFC C) AFC + AVC = ATC D) ATC + AVC = AFC

technological change

a change in the ability of a firm to produce a given level of output with a given quantity of inputs

all inputs can be varied

a characteristic of the long run is

explicit cost

a cost that involves spending money

implicit cost

a non-monetary opportunity cost

diseconomies of scale

a situation in which a firm's long-run average costs rise as the firm increases output.

variable costs

costs that change as output changes

fixed costs

costs that remain constant as output changes

average fixed cost

fixed cost divided by the quantity of output produced

long run

in the _____ no inputs are fixed, the firm can adopt new technology, and increase or decrease the size of its physical plant.

constant returns to scale

its long-run average cost remains unchanged as it increases output.

total cost = fixed cost + variable cost TC = FC + VC

total cost equation

average variable cost

variable cost divided by the quantity of output produced

technology; technological change

we call the process by which a firm does this a ___; if a firm improves its ability to turn inputs into outputs, we refer to this as a positive ___

downward-sloping

when production displays economies of scale, the long-run average cost curve is

contractual payment to hire security worker

which of the following is a fixed cost: -contractual payment to hire a security worker -wages to hire part-time workers -payments to an electric utility -costs of raw materials

law of diminishing returns

at some point, adding more of a variable input to the same amount of a fixed input will cause the marginal product of the variable input to decline.

fall as long as output is increased.

Average fixed costs of production

False

Average total cost is equal to average variable cost minus average fixed cost. True or False

long-run average cost curve

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

marginal product of labor

the additional output a firm produces asa result of hiring one more worker

-workers -machines -natural resources to produce outputs of goods and services

the basic activity of a firm is to use inputs, for example:

economies of scale

the firm's long-run average costs falling as it increases the quantity of output it produces.

Technology

the processes a firm uses to turn inputs into outputs of goods and services

the maximum output that can be produced from each possible quantity

the production function shows

production function

the relationship between the inputs employed and the maximum output of the firm