Economic Chapter 9
What accounts for the stark contrast in the number of concrete plants and the number of aircraft manufacturing plants in the United States?
They have dramatically different minimum efficient scales.
The U-shape of the long-run average-total-cost curve results from which of the following?
economies of scale and diseconomies of scale
A firm grows from one to three plants. As a result, the firm's sales increase, leading to greater marketing expertise. This is an example of which of the following
learning by doing
A planning curve is another term for which of the following?
long-run average total cost curve.
Economies of scale explain the downward-sloping part of the Blank______ curve.
long-run average-total-cost
What describes economic costs
payments required to obtain another service
Term for the total quantity of a specific good produced
total product
What is meant by the phrase "spreading the overhead"
As production increases, average fixed cost declines.
Which of the following is true of average fixed cost when output increases
Average fixed cost declines as output increases.
Which of the following is true of average fixed cost when output increases?
Average fixed cost declines as output increases.
What methods can be used to calculate average total cost?
Average fixed cost plus average variable cost Total cost divided by output (Q)
Start-up firms achieve _______ of scale from learning by doing and through increased specialization of labor, management, and equipment.
economies
Concepts of explicity costs
-A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services. -A firm's monetary payments made for the use of resources owned by others.
Things a firm can easily and quickly adjust
-fuel, hourly labor, raw materials
Examples of fixed costs
-rent -insurance on buildings -interest payments on borrowed capital -fire insurance
Which of the following illustrates constant returns to scale?
A firm's 10% increase in given inputs, causing a proportionate 10% increase in output
Total Fixed Cost
AFC x Q
Total Cost (TC)
ATC x Q
Total Variable Cost (TVC)
AVC x Q
How is marginal cost (MC) calculated?
By dividing the change in total cost by the change in output
What is another term for economies of scale?
Economies of mass production
Which of the following are examples of labor specialization?
Hiring more workers in order to subdivide tasks Assigning each worker one task instead of five or six
Why does the law of diminishing returns not account for the U-shape of the long-run average-total-cost curve?
In the long run all resources and inputs are variable.
Greater labor specialization has which of the following effects?
It eliminates the loss of time that occurs whenever a worker shifts from one task to another.
Average Total Cost (ATC)
TC/Q
Average Fixed Costs
TFC/Q
What is the effect of an increase in the price of labor on the ATC, AVC, and MC curves?
The average-variable-cost, average-total-cost, and marginal-cost curves shift upward. The average-fixed-cost curve remains the same.
Which of the following sections of a long-run average total cost curve depicts constant returns to scale?
The flat section
What determines the degree of the shift in a firm's AVC, MC, and ATC curves when gasoline prices increase?
The level to which gasoline is a major input cost for the firm.
What does the long-run average-total-cost curve show?
The lowest average total cost at which any chosen output level can be produced after the firm has had time to make adjustments in plant size
How do increases in gasoline prices affect the AVC, MC, and ATC curves of most companies?
They all shift upward.
Average fixed cost equals total fixed cost divided by the Blank______.
amount of output
Total fixed cost divided by output plus total variable cost divided by the output yields which of the following?
average total cost
Learning by doing contributes to a firm's Blank______.
economies of scale
Variable costs
costs that change as output changes
The _______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use
economic
Assuming technology and production techniques are fixed and cannot change, if beyond some point of production a firm experiences declining units of additional output with each additional unit of labor input, then the firm is experiencing the effects of the law of Blank______.
diminishing returns
By using economies of scale, successful start-up firms are able to shift their short-run cost curves in which directions?
downward and to the right
_______ costs are the monetary payments a firm makes to purchase resources from others
explicit
________costs are part of the simple existence of a firm's plant and must be paid even when output is zero.
fixed
A firm's decision about what output level to produce is typically a Blank______ decision.
marginal
The lowest level of output at which a firm can minimize long-run average costs is called Blank______.
minimum efficient scale
Increased labor ______ becomes more achievable as a plant increases in size.
specialization
Total product
the total quantity, or total output, of a particular good or service produced
