ECON: Ch.9

____ increases as firms are led by their profit signals to produce more of what consumers want the most

Allocative efficiency

A firm's total fixed cost divided by output

Average fixed cost

Output per unit of labor input

Average product

____ displays the same tendencies as marginal product

Average product

Any output level is found by dividing total cost (TC) by that output (Q) or by adding AFC and AVC at that output

Average total cost

A firm's total variable cost divided by output

Average variable cost

Marginal cost can be defined as the: A)Change in average variable cost resulting from one more unit of production B)Change in total cost resulting from one more unit of production C)Change in total fixed cost resulting from one more unit of production D)Change in average total cost resulting from one more unit of production

B

Over the range of output where the slope of the short-run total cost curve becomes steeper: A)Fixed costs are increasing B)Marginal cost is increasing C)Marginal cost is positive, but decreasing D)Marginal cost is lower than average variable cost

B

Refer to the above table. What is the long-run average cost of producing 30 units of output? A)$9 B)$7 C)$8 D)$10

B

Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information: A)More buyers will come to the market B)New firms will be attracted into the industry C)Some firms will exit from this industry D)Buyers will leave the industry

B

Suppose that you could either prepare your own tax return in 15 hours, or hire a tax specialist to prepare it for you in 2 hours. You value your time at $11.00 an hour; the tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is: A)$110 B)$165 C)$40 D)$55

B

The firm's marginal costs are equal to average total cost somewhere between units: A)1 and 2 B)3 and 4 C)2 and 3 D)4 and 5

B

A firm doubles the quantity of all resources it employs and, as a result, output doubles. Which of the following is correct? A)The long-run average total cost curve is flat B)The example is for the short run rather than the long run C)The law of diminishing returns is proven wrong D)There are increasing returns to scale

A

If a more efficient technology was discovered by a firm, there would be: A)A downward shift in the MC curve B)A downward shift in the AFC curve C)An upward shift in the AVC curve D)An upward shift in the AFC curve

A

If the price of labor or some other variable resource decreased, the: A)MC curve would shift downward B)AFC curve would shift downward C)AVC curve would shift upward D)AFC curve would shift upward

A

Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of: A)$500,000 and an economic profit of $200,000 B)$400,000 and an economic profit of $200,000 C)$200,000 and an economic profit of $500,000 D)$300,000 and an economic profit of $400,000

A

When the marginal-cost curve lies: A)Above the ATC curve, ATC rises B)Above the AVC curve, ATC rises C)Below the AVC curve, total fixed cost increases D)Below the ATC curve, total fixed cost falls

A

As production begins, variable cost will for a time increase by ____

A decreasing amount

The profit number that accountants calculate by subtracting total explicit costs from total sales revenue

Accounting profit

Refer to the above graphs for a competitive market in the short run. What will happen to the firm's economic profits as long-run market adjustments occur? A)Profits will increase to some positive value B)Profits will stay the same as they are now C)Profits will increase to zero D)Profits will decrease to some negative value

C

Refer to the graph above, showing the long-run supply and demand curves in a purely competitive market. The curves suggest that in this industry, the dollars' worth of other products that have to be sacrificed in order to produce each unit of the output of this industry is: A)Not indicated in the graph B)Increasing C)Constant D)Decreasing

C

The marginal-cost curve first declines and then increases because of: A)Increasing, then diminishing, marginal utility B)The decline in the gap between ATC and AVC as output expands C)Increasing, then diminishing, marginal returns D)Constant marginal revenue

C

The vertical distance between ATC and AVC measures: A)Marginal cost B)Total fixed cost C)Average fixed cost D)Economic profit per unit

C

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis? A)An increase in the number of shifts of workers from two to three B)An increase in the amount of steel that the firm buys C)A change in production to a redesigned and retooled facility D)A decrease in the number of production managers in the assembly line

C

Which of the following statements is false? A)Firms may continue operating at a loss in the short run B)In the long run, firms would not continue operating at a loss C)The short run refers to a period of less than one year In the long run D)All inputs can vary

C

Over which long-run average cost does not change

Constant returns to scale

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should: A)Keep trying to sell the hamburger so that people who developed and promote it have a job with the company B)Keep the hamburger on the menu because they've spent so much money and time developing and promoting the product C)Spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time D)Pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost

D

Average fixed cost ____ continuously as output increases

Declines

Due to increasing and then diminishing returns, AVC ____ initially

Declines

Marginal costs are costs the firm can control ____

Directly and immediately

The difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer

Diseconomies of scale

Technological progress shifts cost curves ____

Downwards

The payment that must be made to obtain and retain the services of a resource

Economic cost

A firm's ____ are the sum of its explicit costs and its implicit costs

Economic costs

The result of subtracting all of your economic costs—both explicit costs and implicit costs—from revenue

Economic profit

____ direct how resources are allocated in the economy

Economic profits

The situation when a firm's average total cost of producing a product decreases in the long run as the firm increases the size of its plant, and it explains the ____ part of the long-run ATC curve

Economies of scale, downsloping

The monetary payments it makes to those from whom it must purchase resources that it does not own

Explicit costs

Those costs that do not vary with changes in output

Fixed costs

Short run a.k.a. ____

Fixed plant

The opportunity costs of using the resources that it already owns to make the firm's own product rather than selling those resources to outsiders for cash

Implicit costs

Rising gasoline prices ____ the AVC

Increase (shift upward)

Average product in graph rises when ____

It is less than marginal product

Fixed costs are associated with the very existence of a firm's plant and therefore must be paid even if ____

Its output is zero

Another name for average product is ____

Labor product

This law assumes that technology is fixed and thus the techniques of production do not change. It states that as successive units of a variable resource (say, labor) are added to a fixed resource (say, capital or land), beyond some point the extra, or marginal, product that can be attributed to each additional unit of the variable resource will decline

Law of diminishing returns

A period long enough for a firm to adjust the quantities of all the resources that it employs, including plant capacity

Long run

As plant size increases, a number of factors will for a time lead to ____ average costs of production

Lower

The extra, or additional, cost of producing one more unit of output

Marginal cost

A firm's decisions as to what output level to produce are typically ____

Marginal decisions

The change in total product divided by the change in the quantity of labor

Marginal product

The extra output or added product associated with adding a unit of a variable resource

Marginal product

The lowest level of output at which a firm can minimize long-run average costs

Minimum efficient scale

A relatively rare market situation in which average total cost is minimized when only one firm produces the particular good or service

Natural monopoly

The payment made by a firm to obtain and retain entrepreneurial ability; the level of accounting profit at which a firm generates an economic profit of zero after paying for entrepreneurial ability

Normal profit

In the short run, the firm can vary its ____ by applying larger or smaller amounts of labor, materials, and other resources to that plant

Output

The size of the factory building, the amount of machinery and equipment, and other capital resources

Plant capacity

Resource supply and demand determine ____

Resource prices

A period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the plant's current capacity is used

Short run

____ can be explained as "get money's worth"

Sunk costs

The marginal-cost curve's shape is a consequence of ____

The law of diminishing returns

The technological aspects of production, specifically the relationships between inputs and output, determine ____

The quantities of resources needed

If Boeing hires 100 extra workers for one of its commercial airline plants or adds an entire shift of workers, we are speaking of ____

The short run

Marginal product in graph is zero when

The slope of the total product curve is zero

Average product is ____

The total product divided by units of labor

The sum of fixed cost and variable cost at each level of output

Total cost

Marginal cost can be calculated by ____

Total cost divided by output

The total quantity, or total output, of a particular good or service produced.

Total product

True or false? Economists focus on economic profits rather than accounting profits

True

True or false? The law of diminishing returns does not apply to production in the long run

True

The average-variable-cost and average-total-cost curves are ____ shaped

U

In the short run, a firm can for a time increase its output by adding ____ to its fixed plant

Units of labor

Higher input prices shift cost curves ____

Upward

Costs that change with the level of output

Variable costs

Long run a.k.a ____

Variable plant

Minimum efficient scale (MES) is ____ in concrete manufacturing

Very small