Production and Costs

output total variable costs

In the total variable cost curve the independent variable is _____________, and the dependent variable is __________________.

the quantity of output that minimizes average total cost

efficient scale

Consider an apple farm that has the following data on production: When 10 workers are used, output is 80. When 11 workers are used, output is 88. When 12 workers are used, output is 93. Which of the following statements is true? The marginal product of the tenth worker is 8.0. The marginal product of the twelfth worker is 5. The marginal product of the eleventh worker is 8.0. The Law of Diminishing Returns is true for this production process for the input values shown. All of 2), 3), and 4) are true, but 1) is not true.

All of 2), 3), and 4) are true, but 1) is not true.

marginal product

As the amount of an input decreases, all other inputs being held constant, the ______________ of the input will eventually decline.

output average cost

Average cost curve: the curve that shows average cost as a function of output. __________ is the independent variable and ______________ is the dependent variable.

technology

Costs are determined by the ____________ of production and input prices.

marginal cost

DeltaTC/deltaQ

total cost

Fixed cost + total variable cost

total variable costs

If there are fixed costs, then we can add these to the ____________ to get total costs.

costs

If you know the technology of production (production function or total product curve), and if you know the prices of the inputs to production, then you can find the firm's_________ at any level of output.

output marginal cost

Marginal cost: The curve that shows marginal cost as a function of output. The independent variable is _____________. The dependent variable is ________________.

firms (e.g. MSU has a production function for producing alfalfa)

Production functions apply to ___________.

flatter

The Law of Diminishing Returns says the total product curve eventually gets ___________ as the amount of the variable input increases.

total product curve

The _______________ shows output as a function of a single variable input, holding all other inputs constant.

marginal product of an input

The change in output per unit change in input.

marginal cost

The change in total cost per unit change in output. The increase in cost due to producing one more unit of output. The slope of the total cost curve.

curve

The marginal product _________ shows the marginal product as a function of the quantity of labor used.

the property whereby long-run average total cost falls as the quantity of output increases

economies of scale

Total cost

The shape of the average cost and marginal cost curves can be deduced by looking at the _________ curve.

production function

The term economists use to describe the technology of production, i.e., the relationship between inputs and the output of a good or service.

output

The total variable cost curve shows the total variable cost at each level of ________.

output

There is a production function for every good that shows the maximum _________ you can get from any quantities of inputs. The production function is the description of the current best technology for making a good.

quantity of output

What is the dependent variable for production functions?

marginal product of labor

What is the dependent variable for the marginal product curve?

quantities of inputs

What is the independent variable for production functions?

amount of the input (labor)

What is the independent variable for the marginal product curve?

In the long-run: -all inputs are variable for the firm -firms cannot enter or leave an industry -average costs fall as output increases -marginal costs are zero

all inputs are variable for the firm

marginal product

__________ _________ is the slope of the total product curve: delta Q/ delta L

marginal product

_________________ is a measure of input productivity

total revenue minus total explicit costs

accounting profit

The basic distinction between the short-run and the long-run in a perfectly competitive industry is that in the long-run firms -face vertical demand curves. -have zero marginal costs. -produce the highest possible output rates. -are free to enter or exit.

are free to enter or exit

When marginal cost is greater than average cost we know that as output increases: total cost is less than average cost. average cost must be rising. marginal cost must be falling. average cost must be greater than fixed cost. none of the above.

average cost must be rising.

fixed cost divided by the quantity of output

average fixed cost

At an output level of 15,000 stuffed cobras, the stuffed cobra firm's average variable cost is $4.00, and its average fixed cost is $0.50. If the marginal cost of increasing output from 15,000 to 15,001 stuffed cobras is $5.00, then: average fixed cost, average variable cost, and average total costs will all increase. average fixed cost will not change, but average variable and average total cost will increase. average fixed cost, average variable cost, and average total cost will all decrease. average fixed cost will decrease, but average variable, and average total costs will increase. none of the above is true.

average fixed cost will decrease, but average variable, and average total costs will increase.

total cost divided by the quantity of output

average total cost

variable cost divided by the quantity of output

average variable cost

Inside the firm operates like a _________ economy

command

the property whereby long-run average total cost stays the same as the quantity of output changes

constant returns to scale

Limited personal liability is an advantage of -a sole proprietorship. -a partnership. -both a sole proprietorship and a partnership. -corporations. -none of the above.

corporations

average cost

cost per unit of output. Total cost divided by output. TC/Q.

the property whereby the marginal product of an input declines as the quantity of the input increases

diminishing marginal product

the property whereby long-run average total cost rises as the quantity of output increases

diseconomies of scale

________ profit will never exceed __________ profit.

economic accounting

total revenue minus total cost, including both explicit and implicit costs

economic profit

input costs that require an outlay of money by the firm

explicit costs

input costs that require an outlay of money

explicit costs (accounting)

Old Professor Liedholm quits his job at MSU, where let us assume he makes $500,000 per year(!), to open a self-owned consulting firm. He also hires one worker, who is paid $30,000 per year. There are no other expenses. One could then conclude that his -explicit and implicit costs would both be $30,000 per year. -explicit costs would be $30,000 and implicit costs would be $500,000. -explicit costs would be $30,000 and implicit costs would be zero. -explicit costs and implicit costs would both be $530,000. -none of the above.

explicit costs would be $30,000 and implicit costs would be $500,000.

an economic institution that transforms inputs (resources) into goods and services

firm

costs that do not vary with the quantity of output produced

fixed costs

input costs that do not require an outlay of money by the firm

implicit costs

Input costs that do not require an outlay of money

implicit costs (economic)

the increase in total cost that arises from an extra unit of production

marginal cost

When average cost is at a minimum, it must be true that: marginal cost equals average cost. total cost is minimized. marginal cost is falling. total cost is falling the Law of Diminishing Returns is true.

marginal cost equals average cost.

the increase in output that arises from an additional unit of input

marginal product

What must be given up + explicit costs + implicit costs

opportunity cost

In the long-run, the primary reason that the long-run average total cost curve might INCREASE with increases in outuput is due to Question 8 options: problems of managing and organizing a large organization. specialization and division of labor. the Law of Diminishing Marginal Product too many fixed costs compared to variable costs. none of the above.

problems of managing and organizing a large organization

the relationship between quantity of inputs used to make a good and the quantity of output of that good

production function

total revenue - costs=

profit

total revenue minus total cost

profit

In the short-run, the primary reason that marginal cost increases with increases in output is Question 7 options: economies of scale. diseconomies of scale. the Law of Diminishing Marginal Product the fact that marginal product of labor is also increasing. none of the above.

the Law of Diminishing Marginal Product

Marginal cost is: the cost per unit of output as output changes. the cost of one more unit of a variable input. the increase in cost due to increasing production by one unit. the cost of one more dollar, one extra year into the future. none of the above.

the increase in cost due to increasing production by one unit.

When short-run marginal cost is rising (as output increases), it must be true that Question 9 options: average cost is at its minimum point. total cost is minimized. the firm is operating inefficiently because average cost is less than marginal cost. the firm has exploited the opportunities for producing at lower total cost. the Law of Diminishing Product is true.

the law of diminishing product is true

The Law of Diminishing Marginal Product means that: as a single variable input is increased the total output from that input will decline. isoquants are negatively sloped. the marginal product of an input will eventually decline as the amount of an input is increased. more students writing MSU's on the chalkboard will decrease the number of MSU's per student.

the marginal product of an input will eventually decline as the amount of an input is increased.

The production function describes: the relationship between a firm's output and total cost. the relationship between a firm's output and total receipts. the relationship between a firm's output and the amounts of inputs it uses. the relationship between a firm's output and the amount of total variable cost.

the relationship between a firm's output and the amounts of inputs it uses.

the market value of the inputs a firm uses in production

total cost

Average total cost is: total cost divided by the amount of a variable input. total cost divided by output. fixed cost and variable cost. total variable input cost divided by output. none of the above.

total cost divided by output.

the amount a firm receives for the sale of its output

total revenue

costs that vary with the quantity of output produced

variable costs