ECON 121 ch 11

What distinguishes the short run from the long run?

In the short run, some inputs are fixed, while in the long run, all inputs are variable.

What costs and revenues do economists include when calculating profit that accountants don't include? Give an example of each.

What costs and revenues do economists include when calculating profit that accountants don't include? Give an example of each.

Classify each of the following as fixed or variable costs (assuming the short run): a. Outsourced payroll services. b. Leased offices. c. Company-owned building. d. Payroll taxes.

variable fixed fixed variable

Explain how studying for an exam is subject to the law of diminishing marginal productivity.

Assuming you organize your studying reasonably, you will focus on the parts of the text that are most likely to show up on the exam and most likely to raise your grade. As you study less relevant material, your additional time spent studying will yield fewer additional points on the exam. At some point, additional studying can have a negative return. Explanation: The law of diminishing marginal productivity states that as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall.

If average productivity falls, will marginal cost necessarily rise? How about average cost?

If average productivity is falling, average cost must be rising; if marginal productivity is falling, marginal cost must be rising. But there is no necessary relationship between average productivity and marginal cost.

If average product is falling, what is happening to short-run average variable cost?

If average productivity is falling, short-run average variable cost is rising; to say that productivity falls is equivalent to saying that cost rises.

If marginal cost is increasing, what do we know about average cost?

If marginal cost is increasing, average costs could be rising, falling, or constant. The direction of average costs depends on whether marginal cost is higher or lower than average cost. Explanation: The marginal cost curve goes through the minimum points of both the average variable cost curve and the average total cost curve. Thus, there is a small range where average total costs are falling and average variable costs are rising.

Which of the costs discussed in the chapter is the most important when a firm is deciding how much to produce?

Marginal cost because this cost shows the additional cost associated with producing one more unit of output. Firms will use this information to decide to produce more or less output.