ECON 104 - CH 5

If government policies to increase productivity are successful, then the

production function will shift upward.

Marginal physical product is

the additional output from using one more unit of labor.

If more of an input factor is used, while holding other inputs constant, a firm will eventually experience

diminishing returns

In defining costs, economists recognize

explicit and implicit costs, while accountants recognize only explicit costs.

Rising marginal costs result from

falling marginal physical product.

Total cost is equal to _____ cost at an output level of zero.

fixed

What is equivalent to average total cost?

fixed cost and variable cost added together and then divided by output

Based on the law of diminishing returns, if the number of workers increases and capital investments do not keep pace then, ceteris paribus,

marginal physical product of labor will decrease.

When a firm produces a level of output on the production function

maximum efficiency is achieved

Economic costs are greater than accounting costs

only if implicit costs are greater than zero.

Assume a toy company hires an additional worker to assemble toys, and the size of the factory and amount of equipment remains constant. As a result, the level of output increases but by a smaller amount than when the previous additional worker was hired. This is an example of

the law of diminishing returns.

Rising marginal costs are the result of

the law of diminishing returns.

During the long run

the firm can build or lease any size factory.

If an additional unit of labor costs $30 and has a marginal physical product of 50 units of output per worker, the marginal cost is

$0.60 per unit.

If an additional unit of labor costs $25 and has a marginal physical product of 40 units of output, the marginal cost is:

$0.63.

It is impossible to:

Avoid fixed costs in the short run.

What is most true about the short run?

Some inputs are fixed.

Assume a restaurant hires an additional chef who is as qualified as the current chefs. As a result, the level of output increases but by a smaller amount than when the previous additional chef was hired. Which of the following best explains this occurrence?

The chefs are working with a fixed amount of space and equipment and they get in each other's way.

The main difference to an economist between "short run" and "long run" is that

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

What would cause a firm's production function to shift upward?

increased investment in capital

Improvements in technology shift the

marginal cost curve downward.

The law of diminishing returns can explain why

marginal cost eventually increases in the short run as more output is produced.

Marginal cost will increase with greater output if

marginal physical product is decreasing.

In the short run, a manufacturer should produce the next unit of output as long as

price is greater or equal than marginal cost.

If price is greater than marginal cost for the last unit produced

profit is increasing as output rises.

When a firm makes an investment decision, it views all inputs as

variable over the long run.

Suppose a firm incurred explicit costs of $900 and implicit costs of $200 during a day. If that day the firm sold 8 units at $300 per unit its accounting profits are

$1,500 and its economic profits are $1,300.

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily accounting costs for the firm described above?

$470

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily explicit costs for the firm described above?

$470

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily implicit costs for the firm described above?

$70

In the long run, a company will stay in business as long as price is

greater than or equal to average total costs.

Accounting Profit - Implicit Costs =

Economic Profit

What is most likely a variable cost in the short run?

Labor payments

If the first, second, third, and fourth workers employed by the firm add 15, 21, 12, and 8 units of total product respectively, we can conclude that

after the second worker marginal product declines.

Economic profit is equal to total revenue minus

both implicit costs and explicit costs.

Which of the following is equivalent to total cost? A. fixed costs plus variable costs B. variable costs plus marginal costs C. economic costs plus accounting costs D. marginal costs plus implicit costs

A. fixed costs plus variable costs

What is the best explanation of why the law of diminishing returns does not apply in the long run?

All inputs to production are variable in the long run.

When producing jeans, which of the following are not a variable cost in the short run? A. wage payments to labor B. zipper costs for each jean C. rent paid for the use of a factory D. denim material costs for each jean

C. rent paid for the use of a factory

The maximum output that can be produced from a set of inputs is measured by

the production function

Economic cost is

the value of all resources, both explicit and implicit, used to produce a good or service.

Average total cost is defined as

total cost divided by the quantity produced.