Econ 2106-Chapter 14

The long run average cost curve

Shows the lowest average cost facing a firm as it increasing output changing both its plant and labor force

Average total cost is equal to

TC+quantity & AFC+AVC

Moving along the total product curve, which of the following is held constant?

Technology

The law of decreasing returns applies to

changes in variable input with a given quantity of fixed inputs

Jay set up his hotdog stand near the business district. His total variable cost includes the

cost of hotdogs and condiments

From a firm's viewpoint, opportunity cost is the

cost the firm must pay for the factors of production it employs to attract them from their best alternative use

Which of the following is a fixed cost for ACME manufacturing?

the annual fire and theft insurance premiums

If the average product of labor curve is rising,

the average variable cost curve is falling

The marginal product of labor is

the change in total product divided by the increase in labor

For a business, opportunity cost measures

the cost of all the factors of production the firm employs

Total cost includes

the cost of both variable and fixed resources

The table above shows a total product schedule. Suppose that labor costs $20 per worker and fixed costs are $60. The average total cost of producing 80 units equals ____ per unit

$1.75

Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. these are her only cost. When Anna as a staff of 6 workers, her average total cost equals

$10.00

Anna owns a dog grooming salon in Brunswick, Georgia. The above table as Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only cost. When Anna has a staff of 2 workers, her average total cost equals

$12.00

Suppose a firm's total revenue is $1,000,000. The firm has incurred explicit cost of $750,000. There is also $50,000 of forgone wages by the owner $10,000 of forgone interest $3,000 worth of economic depreciation, and $20,000 worth of normal profit. What is the firm's economic profit?

$167,000

To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The marginal cost of the 11th shirt is equal to

$19

Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her total fixed cost is equal to

$20

The table above gives costs at Jan's Bike shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total fixed cost of producing 64 bikes?

$200

The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the table above. Based on the table, the marginal cost of producing the fourth gallon of ice cream is

$3

Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her marginal cost of producing the 5th pizza is

$8

Bill is an economics professor who earns $40,000 teaching but decides to leave and fulfill his dream of catering barbecues. During his first year of barbecuing, he earned total revenue of $60,000. He spend $30,000 on food and supplies. He also paid his wife $10,000 to help serve food. The normal profit for an entrepreneur running a BBQ business is $3,000. He also rented an industrial grill/fry truck for $12,000. An accountant would conclude that Bill's profit was

$8,000

To produce 10 shirts, the total cost is $80. To produce 11 shirts, the total cost is $99. The average total cost of the 11th shirt is equal to

$9

Based on the figure above, the firm's marginal curve slopes upward at levels of output between ____ and the firm's average product curve slopes upward at levels of output between ____

0 and 4.0 0 and 7.0

Which of the following are correct statements about implicit and explicit costs? 1. Normal profit is an implicit cost 2. Economic depreciation is an explicit cost 3. Wages are an explicit cost

1 & 3 Normal profit is an implicit cost Wages are an explicit cost

Which of the following is an implicit cost in Jim's business venture? 1. The salary Jim could have earned at another job 2. The interest Jim must pay on the loan he incurred to help open his business 3. The interest Jim lost when he used his savings to help open his business

1 & 3 -The salary Jim could have earned at another job -The interest Jim lost when he used his savings to help open his business

Which of the following variables do you need to know to calculate marginal cost? 1. change in total cost 2. marginal product of labor 3. change in quantity of labor used 4. change in output

1 & 4 change in total cost change in output

Jill runs a factory that makes lie detectors in Little Rock, Arkansas. This month, Jill's 34 workers produced 690 machines. Suppose Jill adds one more worker and, as a result, her factory's output increases to 700. Jill's marginal product of labor from the last worker hired equals

10

If 10 workers can produce 1,500 units of output and 11 workers can produce 1,600 units of output, then the average product of 11 workers is

145.5 units

Which of the following is an implicit cost? 1. wages paid to workers 2. the normal profit 3. the electric bill

2 only

If 25 workers can pick 100 flats of strawberries per hour, then the average product is

4 flats per hour

The table above shoes the total product schedule for The X Firm. Increasing marginal returns occur until the _____ worker because ______

4th; the marginal product of the 4th worker exceeds the 3rd worker, but not the 5th worker

The table above shows the total product schedule for The X Firm. Decreasing marginal return occur with the _____ worker because___

5th; the marginal product of labor for the 5th worker is less than the marginal product of the 4th worker

The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When the ____ worker is hired, the average product of labor ______ the marginal product of labor.

6th exceeds

Which of the following is true in the long run?

All cost are variable

Which of the points show efficient production points?

All points on the TP curve

______ cost is defined as a cost of production that does not entail a direct money payment

An implicit

Dr. Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic. His revenues for the first year are $550,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous cost. The normal profit from running his business is $20,000.

His economic profit is zero

Which of the following statements is true?

In the long run, all cost are variable cost

If we know the amount of total cost, average total cost, average variable cost, and marginal cost for each level of output, how can we find the level of output where the marginal product is the greatest?

It is the output for which the marginal cost is minimized

Which of the following is true?

Profit as calculated by accountants and economic profit are not necessarily equal

Which of the following statements correctly describes a total product curve?

The curve separates attainable outputs from unattainable outputs

A firm decreases its scale of operation and discovers that its long-run average cost decrease. Which of the following does this indicate?

The firm's scale initially was so large that it experienced diseconomies of scale

Which of the following is correct?

The long run is the time frame in which the quantities of all resources can be varied

Which of the following is an explicit cost in Jim's business venture?

The wages Jim pays his workers

Consider a Wal-Mart supercenter and a 7-Eleven store. In the long run,

Wal-Mart or 7-Eleven may have economies of scale depending on how many customers are served

Which of the following is correct about marginal and average products?

When the marginal product exceeds the average product, the average product must be increasing

Total fixed cost is the cost of

a firm's fixed factors of production

Diseconomies of scale is

a long run phenomenon

In the long run, constant returns to scale necessarily occur when the firm increases its production and the firm's

average total cost does not change

Decreasing marginal returns

affect all firms, but at different production levels

The cost that a firm pays in money to hire a resource is referred to as ______ cost

an explicit

A cost incurred in the production of a good or service and for which the firm does not need to make a direct monetary payment, is referred to as ____ cost.

an implicit

Increasing marginal returns to labor

are the result of specialization and division of labor in the production process

The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When the 4th worker is hired, the _______ product of labor equals ______ lawns mowed.

average 3.75

Based on the figure above, curve C is the firm's

average total cost curve

The portion of the long-run average cost curve in which economies of scale are experienced shows that as output increases, the

average total cost decreases

Based on the figure above, curve B is the firm's

average variable cost curve

The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When does the average product of labor equal the marginal product of labor?

between the 6th and 7th worker

In the long run, the firm ____ change the number of workers it employs and ____ change the size of its plant.

can can

Diseconomies of scale can occur as a result of which of the following?

management difficulties as the firm increases its size

In a graph of a typical firm's AFC, ATC, and AVC curves, the

distance between the ATC curve and the AVC curve equals the AFC

The opportunity cost of owning and using a firm's capital is defined as the capital's

economic depreciation

If a firm increases its output and its average cost decreases, the firm is experiencing which of the following?

economies of scale

When a firm's long-run average total cost falls as its output increases, the firm is experiencing

economies of scale

In economics, a "normal profit" is the return to

entrepreneurship

Economies of scale can occur as a result of which of the following?

greater specialization of labor and capital as the firm increases its size

The short-run average total cost, average variable cost, and marginal cost curves are all U-shaped because of

increasing and then decreasing marginal returns as more labor is hired

As output increases, average total cost decreases

initially and then starts to increase

The average fixed cost curve

is always negatively sloped

When the average product is at its maximum,

it is equal to the marginal product

To produce more output in the short run, a firm must employ more of

its variable resources

The long run is a time period that is

long enough to change the size of the firm's plant and all other inputs

As output increases, economies of scale occur when the

long-run average cost decreases

Bill is economics professor who earns $37,000 teaching but decides to leave and fulfill his dream of catering BBQs. During his year of BBQing, he earned a total revenue of $60,000. He spend $30,000 on food and supplies. He also paid his wife $10,000 to help serve food. The normal profit for an entrepreneur running a BBQ business is $3,000. Bill also rented an industrial grill/fry truck for $12,000. Bill has an economic

loss of -$32,000

A firm's long-run average cost curve shows the ___ average cost at which it is possible to produce each output when the firm has had ____ time to change both its labor force and its plant

lowest sufficient

When the marginal product is increasing as the quantity increases, then as the quantity increases the

marginal cost is decreasing

If average variable cost increases as output increases, then

marginal cost must be greater than average variable cost

Increasing marginal returns occur when the

marginal product of an additional worker exceeds the marginal product of the previous worker

The table above shoes a total product schedule. Suppose that labor cost $20/worker and fixed costs are $60. The total variable cost of producing 80 units equals

more than $70 and less than $90

The return to entrepreneurship is known as

normal profit

Economic profit equals total revenue minus total

opportunity cost

A normal profit is

part of a firm's opportunity cost

The total variable cost curve ________ because _________ as output increases

slopes upward variable cost increases

The short run is a time period during which

some of the firm's resources are fixed

The main source of economics of scale is

specialization

Which of the following contributes to increasing marginal returns?

specialization of labor

A normal profit is defined as

the return to entrepreneurship

The short run is

the time frame in which some resources are fixed

An increase in the price of labor (a variable resource) shifts

the variable cost curves upward but leaves the fixed cost curves unchanged

One of the major reasons for the U-shaped average total cost curve is the fact that

there eventually are decreasing returns from labor as more workers are employed

A firm's fundamental goal is

to maximize profit

The cost that does not change as output changes is

total fixed cost

Based on the figure above, curve C is the firm's

total fixed cost curve

The marginal product of labor is the change in

total output from employing one more worker

Average product is equal to

total product + quantity of labor

Total cost is equal to the sum of

total variable cost and total fixed cost

Based on the figure above, curve B is the firm's

total variable cost curve

Average variable cost equals

total variable cost divided by output

If a firm does not produce any output, its

total variable cost must be zero

The law of decreasing returns states that as a firm uses more of a

variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases