Economics Test Four

As the level of output​ increases, what happens to the difference between the value of average total cost and average variable​ cost? As the level of output​ increases, the difference between the value of average total cost and average variable cost:

Decreases because average fixed cost decreases as output increases

Is it possible for technological change to be​ negative? If​ so, give an example.

It is possible for technological change to be negative. An example is when a hurricane damages a firm's facilities

The marginal cost curve intersects both the average variable cost and the average total cost curves at their ___points.

Minimum

What is the difference between technology and technological​ change?

Technology is the process of using inputs to make​ output, while technological change is when a firm is able to produce the same output using fewer inputs.

When a positive technological change​ occurs,

1.) The same output can be produced with fewer inputs 2.) More output can be produced from the same inputs

Briefly explain whether you agree with the following​ observation: ​"Technological change refers only to the introduction of new​ products, so it is not relevant to the operations of most​ firms."

1.) The statement is incorrect. Technology includes firm operations such as the skill of its managers. 2.) The statement is incorrect. Technology includes firm operations such as the speed of its machinery.

One description of the costs of operating a railroad makes the following​ observation: ​"The fixed . . . expenses which attach to the operation of railroads . . . are in the nature of a tax upon the business of the​ road; the smaller the​ [amount of]​ business, the larger the​ tax." In what sense is this tax smaller when the amount of business is​ larger?

As production increases, fixed costs can be allocated over a greater amount of output, decreasing the average cost of the tax

All of the following cost measures reach their minimum points when they are equal to the value of marginal​ cost, except one. Which cost measure is the​ exception?

Average fixed cost

What cost measure is equal to AFC plus+AVC​

Average total cost

We saw in the chapter opener that some colleges and private companies have launched online courses that anyone with an Internet connection can take. The most successful of these​ "massive open online​ courses" (MOOCs) have attracted tens of thousands of students. Suppose that your college offers a MOOC and spends a total of​ $200,000 on​ one-time costs to have instructors prepare the course material and to buy additional server capacity. The college administration estimates that the variable cost of offering the course will be​ $20 per student per course. This variable cost is the​ same, regardless of how many students enroll in the course. a.) Use this information to fill in the missing values in the table # of stud. taking course ATC AVC AFC MC 1,000 $___ $____ $___ 10,000 $____ $___ $___ $____ 20,000 $____ $___ $___ $____ b.) Use your answer to part​ (a) to identify the curves in the graph at right. Line is horizontal all the way across the graph. Line A represents: c.) Curve B represents: d.) Curve C represents:

a.) # of stud. taking course ATC AVC AFC MC 1,000 $220 $20 $200 10,000 $40 $20 $20 $20 20,000 $30 $20 $10 $20 b.) Marginal cost and Average Variable Cost c.) Average Total Cost d.) Average Fixed Cost

Suppose the total cost of producing 20,000 tennis balls is ​$30,000​, and the fixed cost is ​$5,000. a.) What is the variable​ cost? ​$____. b.) When output is 20,000​, what is the average variable​ cost? $___ c.) When output is 20,000​, what is the average fixed​ cost?$___ d.) Assuming that the cost curves have the usual​ shape, the dollar difference between average total costs and average variable costs ____as output increases.

a.) 25,000 b.)1.25 c.)0.25 d.)decreases

UPS has reorganized the routes its drivers take to deliver packages to homes. According to an article in the Wall Street Journal​, ​"The company can save​ $50 million a year by reducing by one mile the average aggregated daily travel of its​ drivers." a.) This cost saving is: b.) Suppose that UPS saves​ $50 million per year because of lower gasoline prices. Would that cost saving be due to technological change at the​ firm? Briefly explain. If UPS saved​ $50 million annually due to a decrease in gasoline​ prices, this would be:

a.) An example of positive technological change. b.) Saving that results from the use of lower priced inputs.

In the ancient​ world, a book could be produced either on a scroll or as a​ codex, which was made of folded sheets glued​ together, something like a modern book. One scholar has estimated the following variable costs​ (in Greek​ drachmas) of the two​ methods: Scribe Codex Cost of writing(wage of a scribe) 11.33 drach. 11.33 drach. Cost of paper 16.50 drach. 9.25 drach. Another scholar points out that a significant fixed cost was involved in producing a​ codex: ​"In order to copy a codex...the amount of text and the layout of each page had to be carefully calculated in advance to determine the exact number of sheets...needed. No​ doubt, this is more​ time-consuming and calls for more experimentation than the production of a scroll would. But for the next copy these calculations would be used​ again." a.) Suppose that the fixed cost of preparing a codex was 58 drachmas and that there was no similar fixed cost for a scroll. Would an ancient book publisher who intended to sell 5 copies of a book be likely to publish it as a scroll or as a​ codex? What if he intended to sell 10​ copies? Briefly explain. b.) Although most books were published as scrolls in the first century​ A.D., by the third​ century, most were published as codices. Considering only the factors mentioned in this​ problem, explain why this change may have taken place.

a.) If a publisher intended to sell 5​ copies, he would publish the book as a scroll because the average cost would be lower than as a codex. If he intended to sell 10​ copies, he would publish the book as a codex because the average cost would be lower than as a scroll. b.)By the third​ century, enough books were being published such that the average cost of producing a book as a codex was lower than the average cost of producing a book as a scroll.

Which of the following are examples of a firm experiencing positive technological​ change? a.) A firm is able to cut each​ worker's wage rate by 10 percent and still produce the same level of output. This___ an example of positive technological change. b.) A training program makes a​ firm's workers more productive. This ___an example of positive technological change. c.) An exercise program makes a​ firm's workers more healthy and productive. This ___an example of positive technological change. d.) A firm cuts its workforce and is able to maintain its initial level of output. This ___an example of positive technological change. e.) A firm rearranges the layout of its factory and finds that by using its initial set of​ inputs, it can produce exactly as much as before. This ___ an example of positive technological change.

a.) is not b.) is c.) is d.) is e.) is not

Explain how the listed events would affect the following at Southwest​ Airlines: i. Marginal cost ii. Average variable cost iii. Average fixed cost iv. Average total cost Southwest signs a new contract with the Transport Workers Union that requires the airline to increase wages for its flight attendants. a.) Marginal cost would: b.) Average variable cost would c.)Average fixed cost would d.)Average total cost would The federal government starts to levy a​ $20 per passenger carbon emissions tax on all commerical air travel. a.)Marginal cost would b.)Average variable cost would c.)Average fixed cost would d.)Average total cost would Southwest decides on an​ across-the-board 10 percent cutcut in executive salaries. a.) Marginal cost would b.) Average variable cost would c.) Average fixed cost would d.) Average total cost would Southwest decides to doubledouble its television advertising budget. a.) Marginal cost would b.) Average variable cost would c.) Average fixed cost would d.) Average total cost would

a.)increase b.)increase c.)remain unchanged d.)increase a.)increase b.)increase c.)remain unchanged d.)increase a.)remain unchanged b.)remain unchanged c.)decrease d.)decrease a.)remain unchanged b.)remain unchanged c.)increase d.)increase

As output​ increases, the vertical distance between average total cost and average variable cost curves gets​ _______ and equals​ _______.

smaller;average fixed cost