ecn production costs

What is the shape of the average fixed cost curve for a firm in the short run?

A curve that declines as output expands and approaches the horizontal-axis when output is large.

Suppose a computer manufacturer is producing in the short run when capital is fixed and the only variable factor of production is labor. The change in the quantity of production with the increase in labor is shown in the table below. What does the production function given represent? L | Q 0 0 1 15 2 28 3 38 4 46 5 52

Decreasing diminishing marginal returns to labor

________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

Economies of scale may arise from which of the following activities?

Doubling promotional expenses to expand sale more than proportionately. Having a larger retail space can expand sales more than proportionately.

When a long-run average cost curve illustrates economies to scale it will be:

Downward sloping

Economists distinguish between the short run and the long run as follows:

In the long run, all resources are variable; in the short run, at least one resource is fixed

Which of the following is an implication of the law of diminishing returns?

In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost.

Which of the following must be true if average total cost is rising?

Marginal cost must be greater than average total cost.

Which of the following is true at the point where diminishing returns set in?

Marginal product is at a maximum and marginal cost at a minimum.

Which of the following is most likely to be a fixed cost?

Mortgage payments

Which is (are) an example of a fixed cost?

Rental costs for a dance studio (only received partial credit)

If average total cost is declining, ________.

The marginal cost must be less than average total cost

________ include all of the costs of production that increase with the quantity produced.

Variable costs

Implicit costs are ________.

a foregone opportunity to do something else with your resources

Capital is a factor of production that has been produced for use in the production of other goods and services. Which of the following are examples of capital?

airports computer software

When an owner uses resources they own in a business, that usage should be considered

an implicit cost

In order to determine ________, the firm's total costs must be divided by the quantity of its output.

average total costs

A production function describes how firms

combine capital, labor and other inputs to create products.

Suppose you own a profitable tailoring company that hires two workers. The combined production of the two workers is ten shirts per day. You decide to double the amount of capital and labor and see that the total number of shirts produced each day has increased to 22. This implies that your company is exhibiting ________.

constant returns to scale (incorrect)

The upward sloping portion of a long-run cost curve illustrates:

diseconomies to scale

A large aircraft manufacturer, like Boeing, may have a cost advantage over a new smaller manufacturer because of:

economies of scale

The term ________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

Interest payments are ________.

explicit costs

Salary payments are ________.

explicit costs

Except for one point, the short run average cost must always be ________ the long run average cost.

greater than

A firm's opportunity cost of using resources provided by the firm's owners is called:

implicit costs

The short run is a period of time:

in which a firm uses at least one fixed input.

The marginal product of labor is known to be greater than the average product of labor at a given level of employment. The Average Product at this point would be ________.

increasing

What are three of factors of production?

labor, capital and natural resources

Economies to scale refers to the ________ where all inputs are being allowed to increase together.

long-run average cost curve.

Which of the following are examples of a company's fixed costs:

monthly rent for factory or retail space

Which of the following are true statements about natural resources?

natural resources can be used by people to produce goods and services

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

rising

The long run is a period of:

sufficient length to allow a firm to alter its plant size and capacity and all other factors of production.

Marginal product measures the change in:

the firm's output brought about by employing one additional unit of input.

Which of the following are forms of labor?

the natural ability of a worker the skills a worker has acquired

Implicit costs are:

the opportunity costs of using resources owned by the entrepreneur in his/her own business.

The marginal cost curve is generally ________, because diminishing marginal returns implies that additional units are ________.

upward-sloping; more costly to produce

A firm has $200 million in total revenue and explicit costs of $190 million. If its owners have invested $100 million in the company at an opportunity cost of 10 percent interest per year, the firm's accounting profit is:

$10 million

The WipeOut Ski Company manufactures skis for beginners. Fixed costs are $30. Fill in Table for total cost, average variable cost, average total cost, and marginal cost. Complete the chart by filling in the missing numbers: What is the average variable cost in A? Q = 2 VC = $25 FC = $30

$12.50

Exhibit 7-12 Cost schedule for producing pizza What is the ATC of 4 pizzas? Q FC VC TC 0 $ $ $ 1 48 2 17 3 27 4 78 5 40 6 64 7 80

$19.50

Exhibit 7-9 Cost schedule for firm X Output TFC TVC Quantity 0 $100 $ 0 1 50 2 84 3 108 4 127 5 150

$24

Exhibit 7-8 Costs schedules for producing pizza What is the ATC of producing 5 pizzas? Q FC VC TC MC 0 $ $ $ $ 1 5 2 13 3 10 4 100 140 5 20 6 85 7 215

$32

A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital and $200,000 on materials. What was the firm's accounting profit?

$50,000

Exhibit 7-12 Cost schedule for producing pizza What is the AVC of 3 pizzas? Q FC VC TC 0 $ $ $ 1 48 2 17 3 27 4 78 5 40 6 64 7 80

$9

Exhibit 7-12 Cost schedule for producing pizza What is the AVC of 4 pizzas? Q FC VC TC 0 $ $ $ 1 48 2 17 3 27 4 78 5 40 6 64 7 80

$9.50

Exhibit 7-5 Workers and output data What is the marginal product of the second worker? Laborers Total Product 0 0 1 8 2 20 3 25 4 28 5 29

12

A farm can produce 10,000 bushels of wheat per year with 5 workers and 13,000 bushels with 6 workers. The marginal product of the sixth worker for this farm is:

3,0000 bushels