Chapter 9 SB
Suppose at an output level of 150 units a firm's average fixed cost is $25 and average variable cost is $50. Then the average total cost of the firm is ______.
$75
If the change in total product is 10 units and the change in labor input is 1, what is marginal product?
10
What is the average product If total product is 30 and there are 3 units of labor?
10
A company has three workers. It adds an additional laborer and its total product increases by 21. What is the company's marginal product?
21
With economies of scale, a 10% increase in all resources that causes a 20% increase in output results in which of the following?
A decline in average total cost (ATC)
Which of the following explain the concept of explicit costs? (Check all that apply.)
A firm's monetary payments made for the use of resources owned by others. A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.
If a firm estimates that its level of output will be 40 units, it will most likely select the plant size depicted by which short-run cost curve in the accompanying figure?
ATC -3
What is the difference between accounting profit and economic profit?
Accounting profit equals total revenue less explicit costs. Economic profit equals total revenue less economic costs (explicit and implicit).
________ profit is the firm's total revenue less its explicit costs, whereas ________ profit is the firm's total revenue less economic costs (explicit and implicit).
Accounting; economic
What is the relationship between productivity (MP & AP) and cost (MC & AVC) curves?
As productivity curves are falling, cost curves are rising. They are mirror reflections of each other. As productivity curves are rising, cost curves are falling.
Which of the following industries highlight the pattern of declining long-run average total costs?
Automobile Computer microchip Aluminum
Which of the following sets of values are necessary to compute average total cost (ATC)?
Average fixed cost and average variable cost Total variable cost, total fixed cost, and output Total cost and output
What does the vertical distance between the average total cost and average variable cost curves measure?
Average fixed cost at any level of output
Which of the following is true of average fixed cost when output increases?
Average fixed cost declines as output increases.
What happens to average product when marginal product exceeds it?
Average product continues to rise.
Which of the following is true where the marginal product curve intersects the average product curve?
Average product is at its maximum.
Total fixed cost divided by output plus total variable cost divided by the output yields which of the following?
Average total cost
Which curve first falls and then rises?
Average variable cost curve
Why does marginal product eventually diminish as units of labor are added?
Because the number of workers increases relative to the amount of capital equipment
The size of the factory, the amount of machinery and equipment, and other capital resources define ______ ______.
Blank 1: plant, operational, operation Blank 2: capacity, size
By using economies of scale, successful start-up firms are able to shift their short-run cost curves in which directions?
Downward and to the right
Subtracting explicit and implicit costs from total revenue yields which of the following?
Economic profit
__________ costs are the monetary payments a firm makes to purchase resources from others.
Explicit
When a firm considers its economic costs, it considers which of the following?
Explicit and implicit costs All opportunity costs of resources used
True or false: Economic costs equal explicit costs minus implicit costs.
False
Identify a correct statement about an industry and its individual firms.
Firms can undertake all desired resource adjustments in the long run.
Which costs do not vary with changes in output?
Fixed
In the short run, a business manager is unable to alter which of the following?
Fixed costs
Which of the following are examples of implicit costs?
Forgone wages Forgone rent
How is the long-run average-total-cost curve derived?
From all points of tangency of the short-run average-total-cost curves
What type of opportunity cost does a firm incur when it uses resources that it already possesses instead of selling them for cash?
Implicit
Why does the law of diminishing returns not account for the U-shape of the long-run average-total-cost curve?
In the long run all resources and inputs are variable.
Which of the following worker productivity factors often lead to diseconomies of scale?
Increased opportunities to shirk and avoid work Worker alienation from the employer
Which of the following are examples of fixed costs?
Interest on a firm's debts Rental payments
How does labor specialization allow a worker to become more proficient?
It allows a worker to focus on fewer tasks and become more skilled in performing those tasks.
Greater labor specialization has which of the following effects?
It eliminates the loss of time that occurs whenever a worker shifts from one task to another.
More efficient technology has what effect on the productivity of all inputs?
It increases the productivity of all inputs.
Which of the following best describes the average variable cost curve?
It is U-shaped.
A time period during which a firm can adjust the quantities of all the resources that it employs, including plant capacity, is known as which of the following?
Long run
A planning curve is another term for which of the following?
Long run average-total-cost curve
By expanding the size of its operations, a growing firm is able to experience economies of scale to do which of the following?
Lower its average total costs
product is the change in total product divided by the change in labor input.
Marginal
What is the term for the extra cost of producing one more unit of output?
Marginal cost
Which of the following costs can a firm control directly and immediately?
Marginal costs
Which of the following are examples of variable costs? (Check all that apply.)
Materials costs Fuel costs Transportation services payments
Which of the following occurs at a low level of output for small businesses such as those in retail trades and light manufacturing industries?
Minimum efficient scale
Which best describes economic costs?
Payments that must be made to obtain a resource
Which resource requires the most time for a firm to adjust, given a change in demand?
Plant capacity
What are the components of plant capacity?
Size of the factory building Amount of machinery and equipment
Which of the following occur when fixed costs increase?
The average total cost curve shifts upward. The average fixed cost curve shifts upward.
Which of the following are effects of an increase in the price of labor on the cost curves?
The average-variable-cost, average-total-cost, and marginal-cost curves shift upward. The average-fixed-cost curve remains the same.
Marginal cost includes which of the following?
The cost savings resulting from not producing the last unit of output All the cost associated with producing the last unit of output
What is the primary cause of diseconomies of scale?
The difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer
What are reasons that it difficult for small firms to make use of efficient capital?
The efficient use of large-scale production equipment requires a high production volume. The high price of production equipment is often prohibitive.
Which of the following are examples of a long-run adjustment period?
The three years it takes an oil refining company to build a new plant The two days it takes a t-shirt maker to add sewing machines and silk-screen printers
What is the definition of total product (TP)?
The total quantity, or total output, of a particular good or service produced
________ cost is the sum of fixed cost and variable cost at each level of output.
Total
How is average fixed cost determined?
Total fixed cost divided by output
What is the definition of economic profit?
Total revenue minus economic costs (explicit and implicit)
True or false: Heavy industries, such as aluminum and steel, exhibit the pattern of declining long-run average total costs.
True
True or false: Hourly labor, raw materials, and fuel are examples of resources a firm can easily adjust.
True
True or false: Implicit costs are the firm's opportunity costs of using its self-owned, self-employed resources.
True
When is marginal cost at its minimum?
When marginal product is at its maximum
A(n) ______ profit is equal to total revenue less explicit costs.
accounting
Generally speaking, there are two types of calculable profits. Of these, _____ profit is what remains after a firm has paid its explicit costs.
accounting
Average total cost goes up when marginal cost is greater than ______.
average total cost
The marginal-cost curve intersects with the average-variable-cost curve at the ______.
average-variable-cost curve's minimum
The figure illustrates that in an industry with an extended range of ________ returns to scale, firms of varying sizes can coexist and be equally profitable.
constant
Assuming technology and production techniques are fixed and cannot change, if beyond some point of production a firm experiences declining units of additional output with each additional unit of labor input, then the firm is experiencing the effects of the law of ______.
diminishing returns
Average total cost (ATC) for any output level Q is found by:
dividing total cost (TC) by that output (Q). adding average fixed cost (AFC) and average variable cost (AVC) at that output.
A firm's __________ costs are the explicit and implicit costs of the resources it has used.
economic
The ______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use.
economic
Start-up firms achieve ____ of scale from learning by doing and through increased specialization of labor, management, and equipment.
economies
Learning by doing contributes to a firm's ______.
economies of scale
Accounting profit is what remains after a firm has paid its _______ costs.
explicit
A firm's monetary payments to those who supply transportation services is an example of ______.
explicit costs
A firm's insurance premiums are generally considered ______ costs.
fixed
________ costs are part of the simple existence of a firm's plant and must be paid even when output is zero.
fixed
Forgone entrepreneurial income is an example of a(n) ______.
implicit cost
Later in a production cycle, as diminishing returns are encountered, variable costs ______ for each additional unit of output.
increase by increasing amounts
When total product declines, marginal product ______.
is negative
Which of the following illustrates constant returns to scale?
A firm's 10% increase in given inputs, causing a proportionate 10% increase in output
What is meant by the phrase "spreading the overhead"?
As production increases, average fixed cost declines.
How is total cost calculated?
By adding total fixed cost and total variable cost
If economic cost is $96,000 and total revenue is $120,000, what is the economic profit?
$24,000
What is average total cost if total cost is $100, variable costs are $75, fixed costs are $25, and output is 25?
$4
If total cost rises from $300 to $700 when one additional unit of output is produced, what is the marginal cost?
$400
What is the marginal cost when output changes from 300 to 301 units and total cost rises from $400 to $500?
$100
What is the total revenue if the economic profit is $24,000 and the economic costs are $96,000?
$120,000
When output is 10, what is the total cost if total fixed cost is $50 and total variable cost is $75?
$125
What is the average fixed cost if the average total cost is $100 and the average variable cost is $75?
$25
If at 10 units of output, total fixed cost is $10 and total variable cost is $16, what is total cost?
$26
Your company's total sales revenue for the month is $150,000; the costs to produce your products are $12,000 for rent, $6,000 for utilities, and $42,000 for employee wages. What is your accounting profit?
$90,000
In heavy industries, small firms are unlikely to realize ______ and will be unable to compete with large-scale producers.
minimum efficient scale
The lowest level of output at which a firm can minimize long-run average costs is called ______.
minimum efficient scale
Average variable cost equals total variable cost divided by total ______.
output
If total variable cost is $100, total fixed cost is $100, and output is 10, what is average variable cost?
$10
What is average variable cost if total variable cost is $500, total fixed cost is $100, and output is 50?
$10
Suppose the total fixed cost of a firm is $500, the total variable cost is $200, and the output produced is 5 units. The average fixed cost of the firm is ______.
$100
What is the average fixed cost if total fixed cost is $100, total variable cost is $50, and output is 20?
$5
If total product is 50 and the units of labor used is 10, then the average product is
5, five
Which of the following statements explain why the average variable cost curve is U-shaped?
At low levels of output, production is relatively inefficient and costly. As output rises from the initial very low levels, greater specialization occurs, and average variable cost declines.
How is the average total cost curve determined from graphical information?
By adding vertically the average fixed cost and average variable cost curves.
How can a business manager control variable costs in the short run?
By altering levels of production
Which of the following are likely to cause cost curves to shift?
Changes in technology Changes in resource prices
A firm's decision about what output level to produce is typically a ______ decision.
marginal
Less coordinated decision making by executives and supervisors leads to _______ of scale.
diseconomies
If all workers are hired at the same price, the marginal cost of producing each extra unit of output falls provided the ______ of each additional worker is rising.
marginal product
Variable costs change with the level of ________.
output, production
The long-run average-total-cost curve is derived from the many short-run average-total-cost curves, each of which represents a different ______.
plant size
One explanation for the U-shaped average variable cost curve is that greater ______ yields more efficiency and variable cost per unit of output declines
specialization
Subtracting implicit costs from accounting profit yields which of the following?
Economic profit
What is another term for economies of scale?
Economies of mass production
The U-shape of the long-run average-total-cost curve results from which of the following?
Economies of scale Diseconomies of scale
Determining normal profit involves estimating which of the following?
Forgone entrepreneurial income
Which of the following is an example of labor specialization?
Hiring more workers in order to subdivide tasks Assigning each worker one task instead of five or six
Which of the following result from managerial specialization?
Lower unit costs Greater efficiency
What type of cost can be saved by not producing the last unit?
Marginal
What happens to marginal product when total product is increasing but at a decreasing rate?
Marginal product is positive but falling.
Which of the following are types of resources that require more time for a firm to adjust, given a change in demand?
Size of the factory Amount of machinery
What does the long-run average-total-cost curve show?
The lowest average total cost at which any chosen output level can be produced after the firm has had time to make adjustments in plant size
Which best describes the graphical portrayal of marginal cost?
The marginal cost curve declines sharply at first, reaches a minimum, and then rises abruptly.
The law of diminishing returns assumes that ______.
all units of labor input are of equal quality
Average fixed cost equals total fixed cost divided by the ______.
amount of output
Per-unit costs are also referred to as ______ costs.
average
When minimum efficient scale occurs at a low level of output, consumer ______ may support a large number of relatively ______ producers.
demand; small
In a manufacturing plant with no labor, adding labor increases output and marginal product. However, at some point increasing labor will no longer increase output at the same rate. Adding even more labor eventually causes marginal product to decline, because there will simply not be enough space for so many workers to work. This is an example of the law of _________ returns.
diminishing
The law of ______ returns states that as successive units of a variable resource are added to a fixed resource, beyond some point, the marginal product will decline.
diminishing
The marginal cost curve's shape is a consequence of the law of ________ returns.
diminishing
A firm cannot avoid paying fixed costs in the _______ run.
short
The ______ run refers to a period of time too brief for a firm to alter its plant capacity yet long enough to permit a change in the degree to which the fixed plant is used.
short
How is marginal cost (MC) calculated?
By dividing the change in total cost by the change in output
True or false: Important determinants of an industry's structure are economies of scale and revenue.
False
What happens to average product as additional units of labor are added to a fixed plant?
It increases, reaches a maximum, and then decreases.
Which of the following is true regarding a firm's plant capacity?
It is fixed in the short run.
Which of the following best describes the relationship between a firm's size and its ability to use managerial specialization to its best advantage?
Small firms cannot use management specialists to their best advantage.
What does it mean to the entrepreneur when economic profit is zero?
The entrepreneur is covering all explicit and implicit costs, including a normal profit.
What is the definition of average variable cost?
Total variable cost divided by output (Q)
The shape of the marginal cost curve reflects which of the following?
Total variable cost first increases by decreasing amounts then by increasing amounts.
Which industry requires the most time for its firms to alter plant capacity?
Aircraft manufacturing
Which businesses would allow for the greatest use of management specialization?
An automobile manufacturer An international airline
Where does the marginal-cost curve intersect the average-total-cost curve?
At the minimum point of average total cost
Which of the following enables firms to make per-unit comparisons with product price?
Average-cost data
An increase in the price of labor has no effect on which cost curve?
Average-fixed-cost
Total product goes through three phases: It _____ initially at an increasing rate; then it increases but at a diminishing rate; finally, after reaching a maximum, it _____.
Blank 1: rises, increases, grows, or expands Blank 2: declines, decreases, falls, diminishes, or drops
A company hiring an entire shift of workers is an example of a(n) _________-run adjustment, whereas installing new equipment is an example of a(n) __________-run adjustment.
Blank 1: short Blank 2: long
Which of the following illustrate the concept of a short-run adjustment?
Boeing adds an entire shift of workers. Boeing hires 100 extra workers for one of its commercial airline plants.
Which best characterizes variable costs?
Costs that change with the level of output
Which of the following is true of a firm?
Its decisions regarding what output level to produce are typically marginal decisions.
Which is another term for average product?
Labor productivity
In general, what production characteristic and plant size scale are required for efficient capital usage to be effective?
Large-scale producers High production volume
A firm grows from one to three plants. As a result, the firm's sales increase, leading to greater marketing expertise. This is an example of which of the following?
Learning by doing
What happens to marginal product when total product is increasing at an increasing rate?
Marginal product is rising.
Which group of costs is the most accurate example of variable cost?
Payments for materials, fuel, power, and transportation services
Which of the following resources can a firm easily and quickly adjust?
Raw materials Fuel Hourly labor
Which of the following would incur an explicit cost?
Raw materials Labor services Utility usage
What determines the shape of the long-run average-total-cost curve?
Technology
How is marginal product (MP) defined?
The extra output or added product associated with adding a unit of a variable resource
Which of the following sections of a long-run average total cost curve depicts constant returns to scale?
The flat section
Which of the following best illustrates diseconomies of scale?
The increase in average total costs as a firm expands the size of its plant in the long run
Economically speaking, what period of time is sufficient for new firms to enter or for existing firms to exit an industry?
The long run
Which best describes average product (AP)?
The output per unit of labor input
The smoothness of a long-run average-total-cost curve results from which of the following?
The virtually unlimited number of available plant sizes
How are marginal costs and average fixed costs related?
They are not related.
What happens to variable costs during the onset of production when marginal product is increasing?
They decrease with successive units of output.
What happens to fixed costs when the level of production output reaches zero?
They remain unchanged.
What is the term for the total quantity of a specific good produced?
Total product
True or false: In an industry with an extended range of constant returns to scale, firms of varying sizes can coexist and be equally profitable.
True
True or false: The short run and the long run are conceptual periods rather than calendar time periods.
True
In microeconomics, the long run is also known as which of the following?
Variable-plant period
A farmer cultivates a cornfield by fertilizing and increases the farm's yield to 50 bushels per acre. Additional cultivation increases the yield but at a decreasing rate. At some point, additional cultivation will not lead to any additional output per acre. This is an example of the law of ______.
diminishing returns
Total ________ costs equal explicit costs plus implicit costs.
economic
From the industry's viewpoint, the ________ run includes enough time for existing firms to dissolve and leave the industry or for new firms to be created and enter the industry.
long
In the _________ run, firms are able to adjust all resources.
long
Economies of scale explain the downward-sloping part of the ______ curve.
long-run average-total-cost
A marketing supervisor works in a small plant where she performs a range of duties. As the company grows and hires additional supervisors, she is able to spend the bulk of her time in her area of expertise. In this example, the company has increased its ______.
managerial specialization
Average product declines when ______.
marginal product is less than average product
The marginal-product curve is a mirror image of the ______ curve.
marginal-cost
A ______ is a relatively rare market situation in which average total cost is minimized when only one firm produces the good.
natural monopoly
Increased labor ______ becomes more achievable as a plant increases in size.
specialization
The shape of a long-run average-total-cost curve will determine ______.
the number and size of firms in the industry
At the point on a graph where total product (Q) is zero, total cost is equal to ______.
total fixed cost
Marginal product is the slope of the ______ curve.
total product
Under the definition of long run, all resources and inputs are ______.
variable
When viewed on a graph, total variable cost is measured ______ at each level of output from the X axis.
vertically
When total product is at its maximum, marginal product is ______.
zero
When total revenue earned by an entrepreneur is equal to the sum of explicit and implicit costs, then the entrepreneur earns a(n) ______.
zero economic profit