Chapter 11 Econ HW

economies of scale happen when the firms long-run average total cost ___________ as output increases

decreases

when the marginal cost is less than average total cost, average total cost must be

decreasing

the lease payment she makes to her landlord who owns the building where her store is located is a ________ cost

fixed

the payment she makes on her fire insurance policy is a ________ cost

fixed

any cost that remains unchanged as output changes represents a firms

fixed cost

a firms production function is best described as

illustrating the relationship between inputs and the maximum amount of output that the firm can produce with these inputs

if the marginal product of labor is rising, is the marginal cost of production rising or falling? if the additional output from each new worker is rising,

the marginal cost of that output is falling because the only additional cost to producing more output is the additional wages paid to hire more workers

does the law of diminishing returns apply in the long run?

no

is the amount of time that separates short run from the long run the same for every firm?

no

is the amount of time that separates the short run from the long run the same for every firm

no

diseconomies of scale is

when a firms long-run average costs increase with output

what cost measure is equal to AFC+ AVC

average total cost

suppose a firms average total cost curve is decreasing with output. what can be said of its marginal cost curve? the firms marginal cost curve must be

below the average total cost curve

as output increases, the vertical distance between average total cost and average variable cost curves gets ____________ and equals _____________

smaller ; average fixed cost

a short-run production function holds constant

the amount of capital

the variable cost is

$2025 (quantity of output times AVC)

the total cost is

$2610 (quantity of output times ATC)

the marginal cost is

$33 (see where x quantity of output gives you on MC curve)

the fixed cost is

$585 (total cost minus variable cost)

consider the production of hotdogs. given the average total cost of producing hotdogs illustrated in the graph to the right, which of the following is true of the marginal cost of producing hotdogs

a- the marginal cost of producing up to 400 (minimum) hotdogs is less than the average total cost, but the marginal cost of producing more than 400 hotdogs is greater than the average total cost b- the marginal cost of production is exactly equal to the average total cost at 400 hotdogs

the law of diminishing returns states that

adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline

how are implicit costs different from explicit costs

an explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost

which of the following is likely to be a variable cost for a business firm

cost of shipping products

as the level of output increases, the difference between the value of average total cost and average variable cost

decrease because average fixed cost decreases as output increases

in 2012, then Barnes & Noble CEO William Lynch predicted that although the firm was suffering losses in selling its nook tablet, "the Nook business will scale in fiscal 2013, reducing losses from last year." when lunch said "the book business will scale." he means the nook business will

increase in size gaining economies of scale advantages

which of the following is likely to be a fixed cost for a farmer

insurance premiums on properyi

which of the following are implicit costs

the forgone salary and interest

the production function is the relationship betweeb

the inputs employed by a firm and the maximum output it can produce with those inputs

the production function is the relationship between

the inputs employed by a firm and the maximum output it can produce with those inputs

minimum efficient scale is

the level of output at which the long-run average cost of production no longer decreases with output

which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long run, when no inputs are fixed

the long-run average cost curve

which of the graphs above represents a typical average total cost curve

B (does not start at origin, concave up - cup shaped)

all of the following cost measures reach their minimum points when they are equal to the value of the marginal cost, except one. which cost measure is the exception

average fixed cost

which of the following are sometimes called accounting costs

explicit costs

what is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory

firms have difficulty coordinating production

the $300 per month payment she makes to her local newspaper for running her weekly advertisements is a ________ cost

fixed

the law of diminishing returns applies

in the short run

what is the difference between the short run and the long run

in the short run, at least one of the firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology

suppose Sheri owns a restaurant that serves pizza using three inputs: workers, restaurant space (and layout), and ovens. if workers are variable, restaurant space is variable, and ovens are variable, then Sheri is producing pizza in the _____________

long-run

identify the ATC, AVC, AFC, and MC

top to bottom at ending point: MC ATC AVC AFC

the payment she makes to buy pizza dough is a __________ cost

variable

the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum because

when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the average, it pulls the average up

when do diminishing returns in the production of pizzas start?

when the third worker is hired (when the marginal product of labor starts to decrease)

a firm that does not reach its minimum efficient scale

will lose money if it remains in business

is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? briefly explain

yes. if marginal cost is less than average total cost, then average total cost will be decreasing

the wages she pays her workers is a _________ cost

variable

any cost that changes as output changes represents a firms

variable cost

which costs are affected by the level of output produced

variable costs

she reasons "I would like to have a restaurant in the suburbs, but I pay no rent for my restaurant now, and I don't want to see my costs rise by $3000 per month." what do you think of jills reasoning

Jill is incorrectly ignoring the opportunity cost of using the building she owns

an implicit cost is

a nonmonetary opportunity cost

suppose Henry Ford had continued to experience increasing returns to scale, no matter how large an automobile factory he built. discuss what the implications of this would have been for the automobile industry

a- ford could have profitably sold his cars at a lower price than competitors b- ford would have been able to produce his cars at lower long-run average cost than competitors

as production levels increase, the Nook would become more profitable because

average cost per unit will fall

the marginal cost curve intersects both the average variable cost and the average total cost curves at their ____________ points

minimum

"the marginal product of labor is increasing for the first 3 workers hired and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. then hill must have had to settle for increasingly poor workers." do you agree with the students analysis? explain

no, marginal product initially increases due to division of labor and then decreases due to the law of diminishing returns

for a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. what is this output range

the output range greater than about 525 pizzas per day (check intersection of curves, then all x values after that point)

the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum is because

when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the average, it pulls the average up