Chapter 7 Microeconomics
The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.
Economies of scale
A firm's accounting profit is the result of total revenue minus ______ costs.
Explicit
Cash expenditures a firm makes to pay for resources are called:
Explicit costs
Refer to the above graph. There are constant returns to scale:
From Q2 to Q4
__________ represent the opportunity cost of using resources that the firm already owns.
Implicit costs
In microeconomics, the term _____________________ is synonymous with economies of scale.
Increasing returns to scale
The term _____________ is used to describe the additional cost of producing one more unit.
Marginal cost
The economies-of-scale curve is a long-run average cost curve, because
it allows all factors of production to change.
Economic profit is always
less than accounting profit
Which always increase(s) as output increases?
total cost and variable cost
Accounting profit can be calculated as
total revenue - explicit costs
Economic profits are equal to
total revenues minus the implicit and explicit costs of all inputs used
The marginal cost curve is generally __________, because diminishing marginal returns implies that additional units are ____________.
upward-sloping; more costly to produce
Refer to the table below. At an output of 3 units, the average variable cost is
$14
I''MABigCorp. produces and sells kitchenware. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s total profit or loss to produce the 7,000 can openers was:
$3,000 Loss
I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average variable cost to produce 8,000 specialty pizzas was:
$3.00
I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's total profit or loss to produce 9,000 widgets was:
$36,000 profit
I''MABigCorp. produces and sells kitchenware. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average total cost to produce the 7,000 can openers was:
$6.43
The table below sets out cost information for the production of volleyballs. Some values are missing.
13
Suppose that one worker can produce 15 cookies, two workers can produce 40 cookies together, and three workers can produce 75 cookies together. What is the marginal product of the 2nd worker?
25 cookies
In the table below, when the firm employs 2 workers, the marginal product of the second worker is
38 smart phones
The table below sets out cost information for the production of volleyballs. Some values are missing.
42
Refer to the above graph. There are diseconomies of scale:
After Q4
In order to determine ____________, the firm's total costs must be divided by the quantity of its output.
Average cost
_ tells a firm whether it can earn profits given the price in the market.
Average cost
A situation known as ______________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.
Constant returns to scale
The ______________ of all firms can be broken down into some common underlying patterns.
Cost structure
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
Decreasing returns to scale
occur when the marginal gain in output diminishes as each additional unit of input is added.
Diminishing marginal returns
In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.
Diseconomies of scale
Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?
Physical space for the gallery
Which of the following should typically be ignored because spending has already been made and cannot be changed?
Sunk costs
Which of the following is correct?
TC = TFC + TVC
_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total revenue
In the long run, firms can choose their production technology, and so all costs become ______ costs.
Variable
If a paper mill shuts down its operations for three months so that it produces nothing, its _________________ will be reduced to zero?
Variable costs
If a paper mill shuts down its operations for three months so that it produces nothing, its__________________ will be reduced to zero?
Variable costs
Accounting costs represent
explicit costs paid by the firm
A firm's ________ consist of expenditures that must be made before production starts that ________ over the short run regardless of the level of production.
fixed costs, do not change
From a short-run perspective, a firm's total costs can be divided into _____ costs, which a firm must incur before producing any output, and ________ costs, which the firm incurs in the act of producing.
fixed, variable
The economies-of-scale curve is a long-run average cost curve, because
it allows all factors of production to change
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
Fixed costs are important because, at least in the ___________, the firm _____________.
short run; cannot alter them
In order to determine the average variable cost, the firm's variable costs are divided by____________.
the quantity of output