Unit 2 chapter 7

A firm's marginal product of labor curve slopes downward throughout its length. True or False

False

Economies of scale exist over all ranges of output for which short-run average total cost exceeds long-run average cost. True or False

False

In the short-run, total fixed costs always exceed total variable costs. True or False

False

Suppose a firm earns an accounting profit. This means the firm also earns a positive economic profit. True or False

False

Each short-run average total cost curve is tangent at its lowest point to the long-run average cost curve. True or False

Flase

All of a firm's inputs are considered to be variable in the long run. True or False

True

If the total variable cost of producing 5 units of output is $10 and the total variable cost of producing 6 units is $15, the marginal cost of producing a sixth unit is $5. True or False

True

In the long run, all costs are considered variable. True or False

True

Marginal cost is calculated by dividing the change in total cost by the change in total output. True or False

True

Suppose Joe Rich owns his own company and does not pay himself a salary. This means the salary he could have earned in alternative employment is considered an implicit cost for the firm. True or False

True

Normal profit is defined as a (an): a. implicit profit. b. opportunity profit. c. the minimum profit necessary to keep a firm in business. d. All of the answers above are correct.

c. the minimum profit necessary to keep a firm in business.

The ___________________________ traces the lowest cost per unit at which a firm can produce any level of output when the firm can build any desired plant size.

long-run average cost curve

____________________ is the change in total cost associated with a change in one unit of output.

marginal cost

_______________________ is the change in total output produced by adding one unit of a variable input, with all other inputs used being held constant.

marginal product

The rule that states when marginal cost is below average cost, average cost falls. When marginal cost is above average cost, average cost rises. When marginal cost equals average cost, average cost is at its minimum point is called the ___________________________

marginal-average rule

_______________ is the minimum profit necessary to keep a firm in operation.

normal profit

A (an) ________________ is the relationship between output and inputs

production function

The ________________is a time period during which a firm cannot alter some input such as its factory size.

short run

. Any resource for which the quantity can change during the period of time under consideration is called ______________________

variable input

If the units of variable input in a production process are 1, 2, 3, 4, and 5, and the corresponding total outputs are 30, 34, 37, 39, and 40, respectively. The marginal product of the fourth unit is: a. 2. b. 1. c. 37. d. 39.

a. 2.

The lowest point on the average total cost curve is: a. where it intersects the marginal cost curve. b. where it intersects the average variable cost curve. c. where it intersects the average fixed cost curve. d. where marginal product is maximized.

a. where it intersects the marginal cost curve.

_________________ is equal to total revenue minus both explicit and implicit costs.

economic profit

___________________ is the total fixed cost divided by the quantity of output produced.

average fixed cost

____________________ is the sum of average fixed cost and average variable cost.

average total cost

Total variable cost divided by the quantity of output produced is called _____________________

average variable cost

An economist left his $100,000-a-year teaching position to work full-time in his own consulting business. In the first year, he had total revenue of $200,000 and business expenses of $150,000. He made a (an): a. implicit profit. b. economic loss c. economic profit. d. accounting loss but not an economic loss. e. zero economic profit.

b. economic loss

. When long-run average cost decreases as output increases, the firm experiences ____________________

economies of scale

If a firm enlarges its factory size and realizes higher average (per unit) costs of production then: a. it has experienced economies of scale. b. it has experienced diseconomies of scale. c. it has experienced constant returns to scale. d. the long-run average cost curve slopes downward. e. the long-run average cost curve shifts upward.

b. it has experienced diseconomies of scale.

A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of land for this farm is: a. 6,000 bushels per acre per year. b. 5,000 bushels per acre per year. c. 1,000 bushels per acre per year. d. 11,000 bushels per acre per year.

c. 1,000 bushels per acre per year.

Payments to nonowners of a firm are called: a. implicit costs. b. indirect costs. c. explicit costs. d. economic costs.

c. explicit costs.

The is the situation in which the marginal product of labor is greater than zero and declining as more labor is hired. a. law of demand. b. law of diminishing supply. c. law of diminishing returns. d. law of returns to scale

c. law of diminishing returns.

_______________________ is a situation in which the long-run average cost curve does not change as the firm increases output.

constant returns to scale

Which of the following statements is false? a. TC = TFC + TVC. b. AVC = ATC - AFC. c. AFC = TFC/Q. d. MC equals the change in ATC divided by the change in Q. e. ATC = TC/Q.

d. MC equals the change in ATC divided by the change in Q.

A situation in which the long-run average cost curve rises as the firm increases output is called ______________________________

diseconomies of scale

Which of the following statements is true? a. Economic profit equals accounting profit minus implicit costs. b. The short run is any period of time in which there is at least one fixed input. c. A fixed input is any resource for which the quantity cannot change during the period under consideration. d. In the long run there are no fixed costs. e. All of the answers above are correct.

e. All of the answers above are correct.

Payments to nonowners of a firm for their resources are called . _____________________

explicit costs

Any resource for which the quantity cannot change during the period of time under consideration is called __________________

fixed input

The opportunity cost of resources owned by the firm are called _________________

implicit costs

After some level of output in the short run, each unit of the variable input yields smaller and smaller marginal product. This principle is called the ___________________

law of diminishing returns

A period of time so long that all inputs are variable is called a (an) _____________

long run

The sum of total fixed cost and total variable cost at each level of output is called _______________________

total costs

______________________________ includes costs, such as rent for office space, that cannot vary with the level of output.

total fixed cost

_____________ such as wages, vary as the level of output varies.

total variable cost