micro eco week 7

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each.Their average fixed cost per month per sandwich, rounded to the nearest penny, is

1.43

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of its 10 workers $2,500 a month and spends $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each. Its average total cost, rounded to the nearest penny, is _____.

10

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of its 10 workers $2,500 a month and spends an average of $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each. The average variable cost per month per sandwich, rounded to the nearest penny, is _____.

8.57

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of its 10 workers $2,500 a month and spends $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each. The shop could hire another worker and increase the number of sandwiches it makes by 300. Assuming a constant food cost per sandwich of $1.43, their marginal cost per month per sandwich, of making 300 more sandwiches per month, rounded to the nearest penny, is

9.76

The relationship between the quantity of output and average total cost is described by which of the following? Multiple select question. Marginal cost Economies of scale Constant returns to scale Diseconomies of scale Marginal product

Economies of scale Constant returns to scale Diseconomies of scale

Total revenue minus explicit costs is

accounting profit.

Suppose Event Photo Services takes photographs at private events with cameras they purchased. They process the photos in a rented space and hire hourly labor to arrange shoots and produce the finished photo packages. They buy advertising services from a marketing company for a flat annual fee. Their fixed costs include _____.

advertising, rent, and cameras

When a firm faces constant returns to scale, _____.

an increase in the quantity of output does not change the average total cost

The marginal cost is the

change in total cost ÷ the change in the quantity of output.

If a small firm finds that operating on a larger scale causes its average cost to stay the same, the firm is facing

constant returns to scale.

When a firm realizes diseconomies of scale by expanding,

the ATC curve increases as output increases.

The principle of diminishing marginal product states that the marginal product of an input

decreases as the quantity of the input increases.

Variable costs

depend on the quantity of output produced.

If a small firm finds that operating on a larger scale causes its average cost to increase, the firm is facing

diseconomies of scale.

Implicit costs are costs that

do not require a firm to spend money or take on obligations.

Fixed costs are those that

don't depend on the quantity of output produced.

If a small firm finds that operating on a larger scale enables it to lower its average cost, then the firm is facing

economies of scale.

Costs that require a firm to spend money are ________ Costs

explicit

Firms have both explicit and implicit costs. Accounting profit is total revenue minus _________(explicit/implicit) costs.

explicit

________ costs include both fixed and variable costs.

explicit

___________ costs include both fixed and variable costs.

explicit

_____________ costs are costs that require a firm to spend money. __________costs do not require a firm to spend money or take on obligations.

explicit implicit

True or false: The long run is any period over one year.

false

Average fixed cost = _____ cost/quantity of output.

fixed

the average _____ cost curve trends downward because as production increases, the cost per unit of production decreases.

fixed

Explicit costs include

fixed and variable costs.

__________Costs that don't change as output increases or decreases are called

fixed cost

Average fixed cost equals

fixed cost divided by quantity of output.

The average fixed cost curve trends downward because the

fixed costs remain the same as production increases.

The minimum of the average total cost curve occurs at a higher output level than the minimum of the average variable costs curve because the average _________ cost is lower than the average ____ cost and this pulls the average total cost down.

fixed total

Total costs = ________costs + _______-costs.

fixed variable

When economists think about a firm's costs, they are thinking about everything the firm

gives up in order to produce output.

When output is very low, each additional worker has a ________ (higher/lower) marginal product than the last one; but when more workers are added the marginal product starts to _________ (increase/decrease).

higher decrease

_____costs represent forgone opportunities.

implicit

From looking at a graph of the production function, you can see that the marginal product initially ________ (increases/decreases) when the first few workers are added; but then it begins to ______ (increases/decreases)

increase decrease

The average variable cost curve has its shape because, initially, the first few employees demonstrate ___________(increasing/decreasing) marginal product causing the average variable cost curve to slope ___________(upward/downward) but when the principle of diminishing marginal product kicks in, the curve slopes _______________(upward/downward).

increase downward upward

The marginal product of an employee is the

increase in the units of a product that can be produced by hiring an another employee.

Diseconomies of scale are returns that occur when an increase in the quantity of output

increases average total cost.

Because initially the first few employees have an increasing marginal product but eventually the principle of diminishing marginal product kicks in, the average variable cost curve

is U-shaped.

Suppose Event Photo Services takes photographs at private events. They process the photos in a permanently rented space and hire hourly labor to arrange shoots and produce the finished photo packages. They buy advertising services from a marketing company for a fee based on sales.Their variable costs include

labor and advertising.

Suppose Drink Well produces flavored water in a permanently rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a flat annual fee. Their variable costs include _____.

labor and bottles

Economists think of the ___________ run as being the period of time in which a firm can vary all of its costs.

long

When a firm realizes economies of scale, it can _____.

lower its average cost by producing more output

The increase in the number of units of a product that can be produced by hiring an additional employee is called the ________ product of that employee.

marginal

The increasing slope of the total cost curve reflects the principle of diminishing _______ product

marginal

_________product is represented by the slope of the total production curve.

marginal

The change in total cost divided by the change in the quantity of output is the

marginal cost.

__________costs are what you give up in order to get something.

opportunity

When economists think about a firm's costs, they are thinking about

opportunity costs.

When people refer to the bottom line, they are referring to the company's __________ which is shown on the bottom line in a company's income statement.

profit

When people refer to the bottom line, they are referring to the company's ___________ which is shown on the bottom line in a company's income statement.

profit

The production function shows the relationship between the

quantity of inputs and the quantity of outputs.

Suppose Drink Well produces flavored water in a rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a fee based on sales. Their fixed costs include

rent

The cost of a lease (or any input) is fixed in the ________ run, but not fixed in the _______ run

short lung

Marginal product is represented by the ______ of the total production curve.

slope

Marginal product is represented by the __________ of the total production curve.

slope

In business, people frequently say, "It's all about the bottom line." What they mean by this is

that making a profit is the central goal of a business.

A firm's first few employees tend to have increasing marginal product. At some point, the principle of diminishing marginal product kicks in. As a result,

the average total cost curve is U-shaped.

Because of the principle of diminishing marginal product,

the slope of the total cost curve increases.

average total cost = _________ cost/quantity of output (Enter one word in the blank.)

total

Average total cost equals

total cost divided by quantity.

The quantity sold multiplied by the price paid per unit is

total revenue

Average variable cost equals

variable cost divided by quantity of output.

A flat portion of an average total cost curve represents the

various different levels of output at which the firm achieves constant returns to scale.

Because marginal product is represented by the slope of the total production curve,

when diminishing returns take effect, the total production curve levels out.