Exam 3 QA

When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of

diminishing marginal product.

Which costs do not vary with the amount of output a firm produces?

fixed costs

If marginal cost is below average total cost, then average total cost

is falling.

Average total cost is increasing whenever

marginal cost is less than average total cost.

The amount by which total cost rises when the firm produces one additional unit of output is called

marginal cost.

The efficient scale of the firm is the quantity of output that

minimizes average total cost.

Those things that must be foregone to acquire a good are called

opportunity costs.

Average total cost is equal to

total cost/output

Economic profit is equal to

total revenue minus the opportunity cost of producing goods and services.

The amount of money that a firm receives from the sale of its output is called

total revenue.

Economies of scale arise when

workers are able to specialize in a particular task.

Variable cost divided by quantity produced is

Average variable cost

Accountants often ignore implicit costs.

True

As a firm moves along its long-run average cost curve, it is adjusting the size of its factory to the quantity of production.

True

Assume Jack received all A's in his classes last semester. If Jack gets all C's in his classes this semester, his GPA may or may not fall.

True

Average total cost and marginal cost are merely ways to express information that is already contained in a firm's total cost.

True

Average variable cost is equal to total variable cost divided by quantity of output.

True

Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.

True

Fixed costs are incurred even when a firm does not produce anything.

True

Implicit costs are costs that do not require an outlay of money by the firm.

True

In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.

True

In the long run, inputs that were fixed in the short run become variable.

True

Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases.

False

Diseconomies of scale often arise because higher production levels allow specialization among workers.

False

Economists normally assume that people start their own businesses to help society maximize its income.

False

Fixed costs are those costs that remain fixed no matter how long the time horizon is.

False

If the marginal cost curve is rising, so is the average total cost curve.

False

The average total cost curve is unaffected by diminishing marginal product.

False

The shape of the total cost curve is unrelated to the shape of the production function.

False

When economists speak of a firm's costs, they are usually excluding the opportunity costs.

False

The cost of producing an additional unit of a good is not the same as the average cost of the good.

True

The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve.

True

The shape of the marginal cost curve tells a producer something about the marginal product of her workers.

True

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

True

Variable costs usually change as the firm alters the quantity of output produced.

True

When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale.

True

When trying to understand the decision making process of different firms, economists assume that people think at the margin.

True

The marginal product of labor can be defined as

change in output/change in labor

Average total cost reveals how much total cost will change as the firm alters its level of production.

False