ECON 121 ch 12

One farmer can grow 1,000 bushels of corn on 1 acre of land with 200 hours of labor and 20 pounds of seed. Another farmer can grow 1,000 bushels of corn on 1 acre of similar land with 100 hours of labor and 20 pounds of seed. a. Could both methods be technically efficient? b. Is it possible that both of these production processes are economically efficient?

A Because the second farmer can produce the same amount of corn with fewer inputs, both methods cannot be technically efficient. B It is not possible for both to be economically efficient because the first farmer uses more total inputs than the second farmer. Explanation: Technical efficiency in production means that as few inputs as possible are used to produce a given output. Economic efficiency means using the method that produces a given level of output at the lowest possible cost. a. Because the second farmer can produce the same amount of corn with fewer of each type of input, both methods cannot be technically efficient. Only the second farmer is technically efficient. b. All economically efficient methods are also technically efficient, so it is not possible for both methods to be economically efficient either.

A dressmaker can sew 800 garments with 160 bolts of fabric and 3,000 hours of labor. Another dressmaker can sew 800 garments with 200 bolts of fabric and 2,000 hours of identical labor. Fabric costs $100 a bolt and labor costs $10 an hour. a. Is it possible for both methods to be technically efficient? why or why not b Is it possible for both methods to be economically efficient? why or why not

A Yes bc It is possible that both methods are technically efficient because neither dressmaker is using more of both inputs to produce the same number of garments. correct B No bc It is not possible for both methods to be economically efficient because the second method has lower total costs of production.

In the early 2000s car makers began to design vehicles' chassis, engine, and transmissions so that different models could be produced on the same assembly line. Within the first year of implementing the plan, Ford cut production costs by $240 per car. a. What cost concept was Ford taking advantage of to produce its savings? b. What effect did the plan likely have on Ford's short-run average total cost curve?

A economies of scale and economies of scope B The plan shifted the average total cost curve down. correct

What is the role of the entrepreneur in translating cost of production into supply?

An entrepreneur is an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it. He or she creates supply by organizing production as efficiently as possible, fully taking advantage of any potential economies of scale or economies of scope. correct

Why could diseconomies of scale never occur if production relationships were only technical relationships?

Because the same technical process could be used over and over again at the same cost. correct

True or false? Because entrepreneurs are motivated by opportunities to sell an item at a price higher than the average cost of producing it, they do not start for-benefit firms. Explain your answer.

False. Social entrepreneurs are individuals who blend profit motives with social motives to create for-benefit, not for-profit, corporations. Explanation: False. Financial reward plays a role in entreprenuerial effort, but it is not the only role. Entrepreneurs can also be motivated by providing social goods such as clean air. Recently a new type of firm has emerged, called a for-benefit firm, that includes both profit and social good in itscharter

Why are long-run costs always less than or equal to short-run costs?

In the long run, all inputs are flexible so the firm can minimize all costs. This means that long-run costs will always be less than or equal to short-run costs at the same level of output. correct

A student has just written on an exam that, in the long run, fixed cost will make the average total cost curve slope downward. Why will the professor mark it incorrect?

In the long run, firms have no fixed cost—all costs are variable. The shape of the long-run average total cost curve is determined by economies of scale. correct

In the short run, technology is assumed constant. In the long run, technological change shifts the cost curves down. It does not explain the downward-sloping portion of cost curves. correct

In the short run, technology is assumed constant. In the long run, technological change shifts the cost curves down. It does not explain the downward-sloping portion of cost curves. correct

If a firm is experiencing learning by doing, what is likely true about the long-run average total cost curve? Explain your answer.

Long-run average total costs will fall because employees learn which production processes work and become more proficient over time. correct

How does learning by doing affect average total costs?

Short-run average total costs will fall because employees learn which production processes work and become more productive given the available inputs. correct

What is the difference between technical efficiency and economic efficiency?

Technical efficiency in production means that as few inputs as possible are used to produce a given output. Economic efficiency means using the method that produces a given level of output at the lowest possible cost. correct

Where along the long-run average total cost curve will an efficient firm try to produce in the long run?

When there are constant returns to scale because this is the minimum efficient level of production, and cost per unit of output is at its lowest. correct