Chapter 13 Practice T/F
Average total cost will always be rising
False
Diminishing marginal product suggests that the marginal cost of an extra worker is unchanged.
False
Net profit is defined as net revenue minus depreciation
False
Economists normally assume that the goal of a firm is to
Maximize profit
When a firm is able to put idle equipment to use by hiring another worker, variable costs will rise.
True
Producing an additional cookie is always more costly than producing the previous cookie, this is consistent with the shape of the total cost curve.
True
The amount of money that a firm pays to buy inputs is called total cost
True
The average fixed cos curve always declines with increased levels of output
True
The cost of producing an additional unit of output is the firm's marginal cost.
True
The cost of producing the typical unit of output is the firm's average total cost.
True
The firm can vary the number of workers it employs, but not the size of its factory, this assumption is often realistic for a firm in the short run.
True
The firm's efficient scale is the quantity of output that minimizes average total cost.
True
The length of the short run is different for different types of firms.
True
The long-run average total cost curve is always flatter than the short-run average total cost curve, but not necessarily horizontal.
True
The marginal cost curve crosses the average total cost curve at the efficient scale.
True
The marginal cost of the fifth unit of output equals the total cost of five units minus the total cost of four units
True
The nature of the underlying production function can be described as: "output increases at a decreasing rate with additional units of input."
True
Total cost can be divided into two types. Those two types are fixed costs and variable costs.
True
Total revenue equals total output multiplied by price per unit of output
True
When a firm is making a profit- maximizing production decision, the cost of something is what you give up to get it is likely to be most important to the firm's decision.
True
When, for a firm, long-run average total cost decreases as the quantity of output increases, we have a situation of economies of scale.
True
With regard to cookie production, the figure implies diminishing marginal product of workers.
True
Economics profit is equal to total revenue minus the explicit cost of producing good and services
False
Economies of scale arise when an economy is self-sufficient in production.
False
Economies of scale occur when long-run average total costs rise as output increases.
False
Suppose Jan is starting up a small lemonade stand business. Variable costs for Jan's lemonade stand would include the cost of building the lemonade stand.
False
The amount by which total cost rises when the firm produces one additional unit of output is called average cost.
False
The amount of money that a firm receives from the sale of its output is called total gross profit
False
The changing slope of the total cost curve reflects decreasing average variable cost.
False
The cost of accounting services would be regarded as an implicit cost
False
The efficient scale of the firm is the quantity of output that maximizes marginal product.
False
The marginal product of an input in the production process is the increase in total revenue obtained from an additional unit of that input.
False
The marginal product of labor can be defined as change in profit/change in labor.
False
The marginal product of labor is equal to the incremental cost associated with a one unit increase in labor.
False
Those things that must be forgone to acquire a good are called substitutes
False
To an economist, it is conceivable that the objective that motivates an individual entrepreneur to start a business arises from an innate love for the type of business that he or she starts.
False
Variable cost divided by quantity produced is average total cost.
False
When a factory is operating in the short run, it cannot alter variable costs.
False
When a firm is operating at an efficient scale, average variable cost is minimized.
False
When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of diminishing labor.
False
When marginal cost exceeds average total cost, average fixed cost must be rising.
False
When marginal cost is less than average total cost, average total cost is rising.
False
When marginal cost is less than average total cost, marginal cost must be falling.
False
When marginal cost is rising, average variable cost must be rising.
False
Economists normally assume that the goal of a firm is to...
Make profit as large as possible even if it means reducing output & make profit as large as possible even if it means incurring a higher total cost
One would expect to observe diminishing marginal product of labor when crowded office space reduces the productivity of new workers.
True
One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run, output is not variable.
False
Accounting profit is equal to...
economic profit + implicit profit
Diseconomies of scale occur when average fixed costs are falling.
False
Economic profit is equal to..
1. Total revenue -(explicit costs + implicit costs). 2. Total revenue - opportunity costs
A total-cost curve shows the relationship between the quantity of an input used and the total cost of production.
False
An example of an explicit cost of production would be the cost of forgone labor earnings for an entrepreneur
False
Average fixed cost will be always rising
False
Average fixed costs do not vary with the amount of output a firm produces.
False
Average total cost is equal to output/total cost.
False
Average total cost is increasing whenever total cost is increasing.
False
Average total cost is very high when a small amount of output is produced because average variable cost is high.
False
Average total cost tells us the total cost of the first unit of output, if total cost is divided evenly over all the units produced.
False
Constant returns to scale occur when long-run total costs are constant as output increases.
False
Constant returns to scale" refers to a situation in which, for a firm, all of the firm's short-run average total cost curves are horizontal.
False
Diminishing marginal product suggests that additional units of output become less costly as more output is produced.
False
Fixed costs can be defined as costs that vary inversely with production.
False
Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. The cost of mustard are most likely to be considered fixed costs.
False
If a firm produces nothing, total costs will be zero.
False
If marginal cost is below average total cost, then average total cost is constant.
False
If marginal cost is rising, average variable cost must be falling.
False
In the long run, inputs that were fixed in the short run remain fixed.
False
It takes a firm six months to go from the short run to the long run.
False
John owns a shoe-shine business. His accountant most likely includes wages John could earn washing windows
False
Long-run average total cost curves are often U-shaped for the same reasons that average total cost curves are often U- shaped.
False
Marginal cost is equal to average total cost when average variable cost is falling.
False
Marginal cost must rise as the quantity of output increases.
False
Marginal cost tells us the value of all resources used in a production process.
False
One of the most important properties of cost curves is that for most producers , the average total cost curve never crosses the marginal cost curve
False
Profit is defined as net revenue minus depreciation
False
Some costs do not vary with the quantity of output produced. Those costs are called marginal costs.
False
Specialization among workers occurs when quality management allows workers to switch from one task to another.
False
A production function is a relationship between inputs and quantity of output.
True
Accountants are primarily interested in the flow of money into and out of firms
True
An example of an implicit cost of production would be the income an entrepreneur could have earned working for someone else
True
As the number of workers increases, total output increases, but at a decreasing rate.
True
Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic in the short run, but not in the long run.
True
At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost rises.
True
Economic profit will never exceed accounting profit
True
Explicit costs require an outlay of money by the firm
True
For a firm that uses labor to produce output, the production function depicts the relationship between the quantity of labor and the quantity of output.
True
If a firm wants to capitalize on economies of scale, it may be able to do so by assigning limited tasks to their employees, so they can master those tasks.
True
In reference to setting the production level, a firm's cost curves by themselves do not tell us what decisions the firm will make.
True
In the long run, a firm that produces and sells computers gets to choose how many workers to hire, the size of its factories, and which short-run average-total-cost curve to use.
True
An example of a fixed cost would be:
raw material supplied at a government regulated price and rent paid on a factory
