Micro Economics Cpt. 7

When the wage rate is $10 per hour and the MPP of a worker is 15 units per hour, the unit labor cost is

$0.67 per unit. The wage rate divided by the marginal physical product is equal to the unit labor cost. When the wage rate is $10 per hour and the MPP is 15 units per hour, the unit labor cost is $0.67 (10/15).

Table 21.4.jpg At 2 units of output in Table 20.4, the average variable cost is

$13

Table 21.2.jpg Average fixed cost at 20 units of output in Table 21.2 is

$2.00 Average fixed cost is equal to fixed cost divided by quantity. Fixed cost of 40 (because total cost is $40 at 0 units of output) divided by 20 is equal to $2.00.

Figure 21.2.jpg What is the marginal cost of the 120th unit of output in Figure 21.2?

$288.00 According to the graph, marginal cost is equal to $288 at the quantity 120.

At 4 units of output in Table 21.4, the total variable cost is

$62.00 VC is equal to TC ($78) minus FC ($16), which is $62.

Figure 21.2.jpg What is the average fixed cost when output is 120 units in Figure 21.2?

$80.00 AFC can be found at any quantity of output by taking the difference between ATC and AVC. For example, at the quantity of 120, AFC is equal to $80 ($288 - $208).

T/F: 1. Total output may continue to rise even though marginal physical product is negative. 2. There are still some fixed costs in the long run, such as rent. 3. The productivity of any input is independent and is not affected by the other resources that are used. 4. The marginal cost curve intersects the minimum of the average total cost curve and also the minimum of the average variable cost curve. 5. The total cost at a zero level of output is always equal to the variable cost.

1. False. 2. False 3. False 4. True 5. False

Table 21.4.jpg For the output levels in Table 21.4, the minimum of the average total cost curve occurs at a production rate of

3 units per day ATC is equal to TC divided by quantity. The ATC is $30, $21, $19.3, and $19.5 with output levels of 1 through 4 respectively. Therefore, ATC is minimized at 3 units of output.

Diminishing returns occur because

A firm increases the amount of a variable input without changing a fixed input.

Which of the following is least likely to increase productivity?

A higher wage rate.

The marginal cost curve intersects the minimum of the curve representing

ATC. The MC curve will always intersect both the ATC and AVC curves at their lowest points.

explicit costs

Are the sum of actual monetary payments made for resources used to produce a good. An explicit cost is a payment made for the use of a resource.

implicit costs

Are the value of resources used to produce a good but for which no monetary payment is made

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.

Dad says her cost is $31,000 and Mom says her cost is $47,600.

The average fixed cost (AFC) curve

Declines as long as output increases.

As an In and Out Burger restaurant increases the number of employees for a specific restaurant,

Efficiency will suffer as the restaurant becomes too crowded with employees.

If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire

Enough workers to produce where the MPP equals zero.

A U-shaped average total cost curve implies

First marginal cost below average total cost, and then marginal cost above average total cost.

A production function shows

How a firm's production increases as it adds more labor.

Economic cost

Includes both implicit and explicit costs.

In the short run, which of the following is most likely a variable cost?

Labor and raw materials costs.

If the marginal physical product (MPP) is falling, then the

Marginal cost of each unit of output is rising.

Ceteris paribus, the law of diminishing returns states that beyond some point, the

Marginal physical product of a factor of production diminishes as more of that factor is used.

Figure 21.2.jpg What is the total cost of 120 units in Figure 21.2?

TC can be found by multiplying ATC by quantity at any output level. So at an output level of 120, TC is equal to $34,560 ($288 × 120).

The change in total output associated with one additional unit of input is the

The Marginal Physical Product. The marginal physical product (MPP) is the change in total output associated with one additional unit of input.

Which of the following is always downward-sloping?

The average total cost curve when it is above the marginal cost curve.

An increase in production in the short run definitely results in an increase in

Total cost. Total cost rises as output increases because additional variable costs must be incurred.

T/F: More education and better technology contribute to an increase in productivity, ceteris paribus.

True.

Unit labor cost is equal to the

Wage rate divided by MPP.

In the long run, which of the following is likely to be a variable cost?

all costs are variable in the long run.

-Which of the following costs do not change when output changes in the short run? -In the short run, when a firm produces zero output, total cost equals

fixed costs.

If a fifth unit of labor was added to Table 21.1, its MPP would most likely be

less than 7

The period in which there are no fixed costs is the

long run.

Marginal Cost (MC)

rises as a direct result of diminishing returns.

Average total cost is equal to

the total cost divided by the quantity produced. Average total cost or unit cost per item is total cost divided by the quantity produced.

-Changes in short-run total costs result from changes in -At any given rate of output, the difference between total cost and fixed cost is

variable costs.