Econ Chapter 7

4. Fixed cost

C. Expenditures that do not change regardless of the level of production

1. Explicit costs

D. Out-of-pocket costs, that is, payments that are actually made

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

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

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

do so regardless of what type of competition exists in a market.

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change,

Economies of scale may arise from all but one of the following. Which one is it?

government economic subsidies protect firms from competition to avoid losses.

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

A = 20; E = 5

5. Variable cost

B. Costs that change with the amount of production—the more you produce, the greater this type of cost

3. Accounting profit

C. A cash concept meaning total revenue minus explicit costs—the difference between dollars brought in and dollars paid out; reported to the government's tax collectors

1. Average total cost

D. Total cost divided by the quantity of output

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

A situation where the level of output, scale and average costs are all rising is called

both a and b are correct A) decreasing returns to scale B) diseconomies of scale

The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

in the long-run, the demand curve and average revenue shift as other firms enter the market and increase competition

The economies-of-scale curve is a long-run average cost curve, because

it allows all factors of production to change.

Refer to the table below. If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

losses equal $5

Refer to the graph shown above. Based on the information illustrated in the graph, which of the following is correct?

producing a marginal unit is increasing average costs overall

Refer to the table below. If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

profits equal $40

Refer to the table below. If this information were used to create a total cost graph, the curve should

reflect all of the above.

Fixed costs are important because, at least in the ___________, the firm _______________.

short run; cannot alter them

QUIZ: Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce

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 comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals

whether the firm is earning profit if fixed costs are left out of the calculation.

3. Marginal cost

E. The additional cost of producing one more unit of output

5. Total revenue

E. The income brought

Which formula is correct?

Economic profit = total revenues - explicit costs - implicit costs

The graph above illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

as the point where the total cost curve touches the vertical axis

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

average cost

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

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 average fixed cost to produce 9,000 widgets was

$1.00

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 fixed cost to produce 8,000 specialty pizzas was

$2.00

Which are examples of implicit costs?

1) Depreciation of computer equipment 2) Owner working without compensation

Which statements describe diseconomies of scale?

1) The right-hand portion of the long-run average cost curve begins to rise. 2) A firm or a factory can grow so large that it becomes very difficult to manage, resulting in cost increases greater than the increase in production.

Which describes constant returns to scale?

A situation in which allowing all inputs to expand does not much change the average cost of production

4. Economic profit

A. Total revenue minus total cost, including both explicit and implicit costs

2. Average variable cost

A. Variable cost divided by the quantity of output

2. Implicit costs

B. Subtle, important costs representing the opportunity cost of using resources already owned by the firm

Which statement is true?

The marginal cost curve is generally upward-sloping, because diminishing marginal returns imply that additional units are more costly to produce.

Which statement is true?

The more you produce, the greater the variable cost.

Which statement is true?

The relationship between the quantity at the minimum of the long-run average cost curve and the quantity demanded in the market at that price will predict how much competition is likely to exist in the market.

______________ include all of the costs of production that increase with the quantity produced.

Variable costs