Week 7 Production Costs
The time period in which at least one input of production is fixed but other inputs an be changed.
Short Run
Price x Quantity =
Total Revenue
A curve showing the lowest average total cost possible for any given level of output when all inputs of production are variable.
Long-Run Average Total Cost Curve
Change in Total Cost / Change in Output
Marginal Cost
Change in Total Variable Cost / Change in Output
Marginal Cost
The additional cost associated with one more unit of an activity. For production, it is the change in total cost due to the production of one more unit of output.
Marginal Cost
If MC < ATC, then ATC (increases, decreases or remains unchanged)
decreases
Total revenue minus the explicit cost of production is _________________profit.
accounting
If MC = ATC, then ATC (increases, decreases or remains unchanged)
remains unchanged
Suppose a snowboard manufacturer increases its output by 1 snowboard per day. As a result, the total cost of producing snowboards each day rises from $100 to $110. The marginal cost of producing an extra snowboard is $___ .
$10
A curve showing the lowest average total cost possible for any given level of output when all inputs of production are ______________________(variable/fixed) is the long-run average cost curve.
variable
The average amount of output produced per unit of a resource employed; total product divided by the number of units of a resource employed.
Average Product
Total Product / Units of Resource (ie. labor)
Average Product
Total Cost / Output (Average Fixed Cost + Average Variable Cost)
Average Total Cost
The sum of fixed and variable costs of production.
Total Cost (TC)
If MC > ATC, then ATC (increases, decreases or remains unchanged)
increases
A curve showing the average total cost for different levels of output when at least one input of production is fixed typically plant capacity is the _________________________ -run average cost curve.
short
A period of time in which at least one input of production is fixed is known as the (short/long) run.
short
if MC = AVC, then AVC (increases, decreases or remains unchanged)
remains unchanged
A curve showing the____________________total cost for different levels of output when at least one input of production is fixed typically plant capacity is the short-run average cost curve.
average
Costs that change with the amount of output produced are _____ costs. fixed supply variable rigid
variable
Total _____ costs change with output whereas total _____ costs do not.
variable; fixed
Total ________________costs change with output, whereas total ______________costs do not.
variable; fixed
Total product divided by the number of units of a resource employed gives the _________________ product of the resource.
average
A conditional in which the long-run average total cost of production remains constant as production increases.
Constant Returns to Scale
A conditional in which the long-run average total cost of production increases as production increases.
Diseconomies of Scale
Total Revenue (TR) - Explicit Costs =
Accounting Profit
Explicit Costs + Implicit Costs =
Economic Costs
The costs associated with the use of resources; the sum of explicit and implicit costs.
Economic Costs
Costs that do not change with the amount of output produced are ______________________costs.
fixed
The short run is a period of time in which: all inputs of production are variable. no inputs of production are fixed. at least one input of production is fixed. no inputs of production are variable.
at least one input of production is fixed.
The ________________ fixed cost curve always declines with the quantity of output produced.
fixed (Since fixed costs are the same no matter the level of output, as output increases average fixed costs always fall, approaching $0 for high levels of output.)
The price of a good times the quantity sold equals: accounting costs. economic costs. economic revenue. total revenue.
total revenue.
A company currently producing 10 air conditioners each day has daily total costs of $1,500. Producing an additional air conditioner will increases costs by $250 daily. What are the total daily costs for the firm if they produce the 11th air conditioner? $1,500 $1,750 $250 $1,250
$1,750 (The total cost of the firm will be $1,750 if the firm produces the 11th air conditioner. We calculate this by adding the marginal cost of the 11th unit to the total cost of producing 10 units.)
Suppose a snowboard manufacturer increases it output by 1 snowboard per day. As a result, the total cost of producing snowboards each day rises from $120 to $145. The marginal cost of producing an extra snowboard is $_____.
$25
A characteristic of production whereby the marginal product of the next unit of variable resource utilized is less than that of the previous variable resource.
Diminishing Marginal Returns
Total Revenue (TR) - Economic Costs =
Economic Profit (as Measure)
The opportunity costs of using owned resources; costs for which no monetary payment is explicitly made. (are unseen)
Implicit Costs
The time period in which all inputs of production can be changed.
Long Run
On a graph the curve initially declines and subsequently increases with additional units of output produced.
Marginal Cost Curve
Change in Total Product (TP) / Change in Variable Resource
Marginal Product
The additional output produced as a result of utilizing one more unit of variable resource (i.e, labor or capital).
Marginal Product
The lowest level of output at which the long-run average total cost is minimized.
Minimum Efficiency Scale
A curve showing the average total cost for different levels of output when at least one input of production is fixed, typically plant capacity.
Short-Run Average Total Cost Curve
A firm is reducing their output from 2,000 units to 1,000 units. This decision results in a reduction in the long run average cost from $300 to $200. What can be said about this firm? The firm is experiencing profitable returns to scale. The firm is experiencing constant returns to scale. The firm is experiencing economies of scale. The firm is experiencing diseconomies of scale.
The firm is experiencing diseconomies of scale. (When output is reduced the LRATC falls. This occurs if the firm is experiencing diseconomies of scale.)
__________________cost equals total fixed cost plus total variable cost.
Total
Total Fixed Cost + Total Variable Cost
Total Cost (TC)
The total amount of output produced with a given amount of resources.
Total Product Total Product (TP) = Total Output
Marginal product is the: total output produced as a result of utilizing one more unit of a fixed resource. additional output produced as a result of utilizing one more unit of a fixed resource. total output produced as a result of utilizing one more unit of a variable resource. additional output produced as a result of utilizing one more unit of a variable resource.
additional output produced as a result of utilizing one more unit of a variable resource.
Total cost divided by the amount of output produced is equal to: average total cost. average variable cost. average fixed cost. marginal cost.
average total cost.
Explicit costs are also known as (direct/opportunity) costs.
direct
If MC > AVC, then AVC (increases, decreases or remains unchanged)
increases
Diseconomies of scale is a condition in which the _____________-run average total cost of production increases as production increases.
long
Constant returns to scale occur when: long-run average total cost does not change as output increases. long-run average total cost does decreases as output increases. long-run average total cost does increases as output increases.
long-run average total cost does not change as output increases.
Costs that do not change with the amount __________________ of produced are fixed costs.
output or product
Total revenue equals: output times quantity. cost times output. price times cost. price times quantity.
price times quantity.
Total fixed cost divided by the amount of output produced; fixed cost per unit.
Average Fixed Cost
Total Cost divided by the amount of output produced; total cost per unit.
Average Total Cost
Total Variable Cost / Output
Average Variable Cost
Total variable cost divided by the amount of output produced; variable cost per unit.
Average Variable Cost
Which of the following is true of economic costs? Economic costs are defined as the sum of explicit and implicit costs. Economic costs are defined as the difference between explicit costs and implicit costs. Economic costs are defined as the sum of all explicit costs. Economic costs are defined as the sum of all implicit costs.
Economic costs are defined as the sum of explicit and implicit costs.
Costs that do not change with the amount of output produced.
Fixed Costs
Opportunity Costs of Owned Resources=
Implicit Costs
In addition to total cost, it is useful to calculate ______________________cost because it can be compared directly to the price.
average
In addition to total cost, it is useful to calculate _____________________cost because it is more useful for managing.
average
The amount of output produced per unit of a resource employed is the __________________ product.
average
The fixed cost per unit is equal to: average variable cost. average total cost. average fixed cost. marginal cost.
average fixed cost.
Total cost divided by the amount of output produced is equal to: average fixed cost. average variable cost. marginal cost. average total cost.
average total cost.
Total cost per unit is equal to: average variable cost. marginal cost. average fixed cost. average total cost.
average total cost.
Total variable cost divided by the amount of output produced is equal to: average fixed cost. average total cost. marginal cost. average variable cost.
average variable cost.
Variable cost per unit of output produced is: average total cost. marginal cost. average fixed cost. average variable cost.
average variable cost.
The average fixed cost curve: decreases for low levels of output, then begins to increase as output increases. decreases for all levels of output. increases for all levels of output. increases for low levels of output, then begins to decrease as output increases.
decreases for all levels of output.
The marginal cost curve is: decreasing for all levels of output. increasing for all levels of output. decreasing for low levels of output, then begins increasing. increasing for low levels of output, then beings decreasing.
decreasing for low levels of output, then begins increasing. (The marginal cost curve by decreasing, but eventually diminishing marginal returns causes the marginal cost to increase for higher levels of output?
For quantities occurring before the marginal cost curve and average total cost curve intersect, the average total cost curve will be: increasing. negative. at its minimum. decreasing.
decreasing. (For quantities before the intersection point, ATC will decrease. At the intersection of MC and ATC, ATC will be at its minimum. For quantities beyond the intersection ATC will increase.)
The marginal cost is the: per-unit cost of purchasing inputs required for the production of output. extra or additional cost associated with the production of an additional unit of output. per-unit cost of producing output. per-unit cost associated with the production of an extra unit of output.
extra or additional cost associated with the production of an additional unit of output.
The marginal cost is the: sum of the fixed cost and the variable cost of production. extra or additional cost associated with the production of an additional unit of output. cost associated with the production of an additional unit of output. per unit cost associated with the production of output.
extra or additional cost associated with the production of an additional unit of output.
Total cost equals total _______________cost plus total _________________cost.
fixed; variable
Increasing marginal returns is a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is ________________________ (greater/smaller) than that of the previous variable resource.
greater
The average total cost curve is: greater than the average variable cost curve for all levels of output. less than the average variable cost curve for low levels of output, but greater for higher output levels. less than the average variable cost curve for all levels of output. greater than the average variable cost curve for low levels of output, but less for higher output levels.
greater than the average variable cost curve for all levels of output.
Costs for which no monetary payment is explicitly made are ______________costs.
implicit
Total revenue minus the total _____ and total _____ costs of production is economic profit. implicit; modified implicit; explicit explicit; modified explicit; accounting
implicit; explicit
A period of time in which at least one input of production is fixed is known as the: long run. short term. long term. short run.
short run.
When there are diminishing marginal returns: the marginal product of the next unit of a variable resource utilized is more than that of the previous variable resource. the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource. the average product of the next unit of a variable resource utilized is less than that of the previous variable resource. the total product of the next unit of a variable resource utilized is less than that of the previous variable resource.
the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource.
Total product is: the total amount of revenue generated from selling goods services or resources. the change in total product due to a change in a variable input to production. the total cost of output produced with a given amount of resources. the total amount of output produced with a given amount of resources.
the total amount of output produced with a given amount of resources.
Costs that change with the amount of output produced are____________________costs.
variable
______________________of scale is a condition in which the long-run average total cost of production increases as production increases.
Diseconomies
A young Thomas Edison produces and sells 20 light bulbs a week in his dorm room. The parts for each light bulb cost $2.00. He sells each light bulb for $5.00. General Electric offers Thomas an executive job that pays $50.00 a week. Thomas's weekly economic profit from making light bulbs is equal to:
$10 TR ($20x$5)-EC(($20x$2)+$50))=$10
If you run a small bakery, the total (1)____________________ costs of your business include the (2)____________________________costs, such as your employees' wages, electricity used, capital, and ingredients purchased plus the (3)___________________ costs of your own time and use of other owned resources.
(1) economic (2) explicit (3) implicit
A business owner makes 50 items by hand in 40 hours. She could have earned $20 an hour working for someone else. Her total explicit costs are $200. If each item she makes sells for $15, her economic profit equals:
-$250 (TR(50x15)-EC(200+800))
Total Fixed Cost / Output
Average Fixed Cost
Which of the following is true of economic costs? Economic costs are defined as the difference between explicit costs and implicit costs. Economic costs are defined as the sum of all implicit costs. Economic costs are defined as the sum of explicit and implicit costs. Economic costs are defined as the sum of all explicit costs.
Economic costs are defined as the sum of explicit and implicit costs.
______________________of scale is a condition in which the long-run average total cost of production decreases as production increases.
Economies
A conditional in which the long-run average total cost of production decreases as production increases.
Economies of Scale
Monetary payments made by individuals, firms, and governments for the use of others' land, labor, capital and entrepreneurial ability owned by others. Also known as accounting costs. (are seen)
Explicit Costs
A characteristic of production whereby the marginal product of the next unit of a variable resource utilized is greater than that of the previous variable resource.
Increasing Marginal Returns
A firm is planning to increase output in the long run from 100 units to 200 units. The long run average total cost falls from $25 to $20. What can be said about this level of output? The firm is experiencing scarce returns to scale. The firm is experiencing economies of scale. The firm is experiencing diseconomies of scale. The firm is experiencing constant returns to scale.
The firm is experiencing economies of scale. (If long run average costs fall as output increases the company is experiencing economies of scale.)
Costs that change with the amount of output produced, increasing as production increases and decreasing as production decreases.
Variable Costs
Which of the following costs is an explicit cost for you? You decide to use an extra room for your business that you could have rented out to your neighbor. You hire a worker who could have received the same wage working for your competitor. You spend your time running your own business even though a large corporation offered you a generous contract. You raise cattle on your family-owned farm even though you could sell your land to a developer.
You hire a worker who could have received the same wage working for your competitor.
The upward-sloping portion of the long-run average cost curve is a result of economies of scale. constant returns to scale. diseconomies of scale. increasing marginal productivity.
diseconomies of scale.
The short run is: a period of time in which no inputs of production are fixed. one year. a period of time in which at least one input of production is fixed. a period of time in which all inputs of production are fixed.
a period of time in which at least one input of production is fixed.
Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn't using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $12,000 per month. a. What are Barney's average monthly accounting profits? b. What are Barney's average monthly economic profits?
a. $11,875 (12,000-(75+25)) b. $1,575 (12,000-(10,000+300+75+25))
Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn't using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $12,000 per month. a. What are Barney's monthly explicit costs? b. What are Barney's monthly implicit costs? c. What are Barney's monthly economic costs?
a. $125 (office supplies $75 + $50 increase in electricity) b. $10,300 (previous job salary $10k & $300 rent could receive from garage) c. $10,425 (explicit + implicit 125+10,300)
Total fixed cost divided by the amount of output produced is equal to: marginal cost. average total cost. average fixed cost. average variable cost.
average fixed cost.
A condition in which the long-run average total cost of production remains constant as production increases is called: diseconomies of scale. economies of scale. minimum-efficiency scale. constant returns to scale.
constant returns to scale.
A firm finds that whether it produces 30,000 vases or 40,000 vases, its average total cost is $180. This observed pattern might be explained by diminishing marginal productivity. constant returns to scale. economies of scale. diseconomies of scale.
constant returns to scale.
If MC < AVC, then AVC (increases, decreases or remains unchanged)
decreases
Total revenue minus the explicit and implicit costs of production is _____ profit. normal economic interior accounting
economic
Total revenue minus the explicit and implicit costs of production is _________________ profit
economic
The costs associated with the use of resources are called: economic costs. implicit costs. explicit costs. accounting costs.
economic costs
A condition in which the long-run average total cost of production decreases as production increases is called: economies of scale. minimum-efficiency scale. constant returns to scale. diseconomies of scale.
economies of scale.
The downward-sloping portion of the long-run average cost curve is a result of economies of scale. constant returns to scale. diseconomies of scale. decreasing marginal productivity.
economies of scale.
The lowest level of output at which the long-run average total cost is minimized is called minimum ____________________(one word) scale.
efficiency
Monetary payments made by individuals, firms ,and governments for the use of others' land, labor, capital, and entrepreneurial ability are _____________________costs.
explicit
Total revenue minus the total _____ costs of production is accounting profit. interior explicit implicit normal
explicit
The opportunity costs of using owned resources are ____________________costs.
implicit
Decreasing marginal returns are a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is _________________________ than that of the previous variable resource.
less
A curve showing the ____________________average total cost possible for any given level of output when all inputs of production are variable is the long-run average cost curve.
lowest
Increasing __________________returns is a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is greater than that of the previous variable resource.
marginal
The additional output produced as a result of utilizing one more unit of a variable resource is the ______________________ product.
marginal
The cost associated with an additional unit of output is called ________________________(marginal/average) cost
marginal
When a car factory increases production from 100 to 101 cars, the firms total cost increases by $15,000, which is the __________ cost of producing the additional car.
marginal
The marginal cost curve shows the relationship between: output and number of workers. marginal cost and number of workers. total cost and marginal cost. marginal cost and output.
marginal cost and output. (The marginal cost curve is graphed as the relationship between marginal cost and output.)
When examining the cost curves for a firm, the minimum average variable cost occurs at the output level where: average total cost equals price. marginal cost equals average variable cost. marginal cost equals average total cost. average total cost equals average variable cost.
marginal cost equals average variable cost. (The minimum AVC occurs at the intersection of the MC and AVC curves. If MC is greater than AVC, AVC is increasing. If MC is less than AVC, AVC is decreasing.)
The lowest level of output at which the long-run average total cost is minimized is called: minimum-efficiency scale. economies of scale. diseconomies of scale. constant returns to scale.
minimum-efficiency scale.
The total amount of output produced with a given amount of resources is known as the total _______________.
product
A period of time in which at least one input of production is fixed is known as the _______________ run.
short
Which of the following is an implicit cost of owning and operating a farm? the money received for crops grown during the growing season the money paid for repairing a tractor the money paid for fertilizer each growing season the money a farmer could earn by working for someone else
the money a farmer could earn by working for someone else