Reading Quiz: Chapter 9. Businesses and the Costs of Production
What is average variable cost if total variable cost is $500, total fixed cost is $100, and output is 50?
$10
Suppose the total fixed cost of a firm is $500, the total variable cost is $200, and the output produced is 5 units. The average fixed cost of the firm is ______.
$100
What is the marginal cost when output changes from 300 to 301 units and total cost rises from $400 to $500?
$100
What is the total revenue if the economic profit is $24,000 and the economic costs are $96,000?
$120,000
When output is 10, what is the total cost if total fixed cost is $50 and total variable cost is $75?
$125
If economic cost is $96,000 and total revenue is $120,000, what is the economic profit?
$24,000
What is the average fixed cost if the average total cost is $100 and the average variable cost is $75?
$25
If at 10 units of output, total fixed cost is $10 and total variable cost is $16, what is total cost?
$26
Suppose at an output level of 150 units a firm's average fixed cost is $25 and average variable cost is $50. Then the average total cost of the firm is ______.
$75
If the change in total product is 10 units and the change in labor input is 1, what is marginal product?
10
A company has three workers. It adds an additional laborer and its total product increases by 21. What is the company's marginal product?
21
With economies of scale, a 10% increase in all resources that causes a 20% increase in output results in which of the following?
A decline in average total cost (ATC)
Which of the following explain the concept of explicit costs? (Check all that apply.)
A firm's monetary payments made for the use of resources owned by others. A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.
Which industry requires the most time for its firms to alter plant capacity?
Aircraft manufacturing
Marginal cost includes which of the following?
All the cost associated with producing the last unit of output The cost savings resulting from not producing the last unit of output
Which of the following industries highlight the pattern of declining long-run average total costs?
Aluminum Automobile Computer microchip
Which of the following are types of resources that require more time for a firm to adjust, given a change in demand?
Amount of machinery Size of the factory
Which of the following statements explain why the average variable cost curve is U-shaped?
As output rises from the initial very low levels, greater specialization occurs, and average variable cost declines. At low levels of output, production is relatively inefficient and costly.
What is meant by the phrase "spreading the overhead"?
As production increases, average fixed cost declines.
Where does the marginal-cost curve intersect the average-total-cost curve?
At the minimum point of average total cost
Which of the following is true of average fixed cost when output increases?
Average fixed cost declines as output increases.
What happens to average product when marginal product exceeds it?
Average product continues to rise.
Which of the following is true where the marginal product curve intersects the average product curve?
Average product is at its maximum.
Total fixed cost divided by output plus total variable cost divided by the output yields which of the following?
Average total cost
Which curve first falls and then rises?
Average variable cost curve
How can a business manager control variable costs in the short run?
By altering levels of production
How is marginal cost (MC) calculated?
By dividing the change in total cost by the change in output
Which best characterizes variable costs?
Costs that change with the level of output
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
True or false: Important determinants of an industry's structure are economies of scale and revenue.
False
Which costs do not vary with changes in output?
Fixed
costs are part of the simple existence of a firm's plant and must be paid even when output is zero.
Fixed
In the short run, a business manager is unable to alter which of the following?
Fixed costs
What type of opportunity cost does a firm incur when it uses resources that it already possesses instead of selling them for cash?
Implicit
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.
Which of the following are examples of fixed costs?
Interest on a firm's debts Rental payments
How does labor specialization allow a worker to become more proficient?
It allows a worker to focus on fewer tasks and become more skilled in performing those tasks.
What happens to average product as additional units of labor are added to a fixed plant?
It increases, reaches a maximum, and then decreases.
Which of the following best describes the average variable cost curve?
It is U-shaped.
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 time period during which a firm can adjust the quantities of all the resources that it employs, including plant capacity, is known as which of the following?
Long run
A planning curve is another term for which of the following?
Long run average-total-cost curve
By expanding the size of its operations, a growing firm is able to experience economies of scale to do which of the following?
Lower its average total costs
What is the term for the extra cost of producing one more unit of output?
Marginal cost
Which of the following costs can a firm control directly and immediately?
Marginal costs
A firm's decision whether to produce a few more or a few less units of output is a decision based on which of the following?
Marginal data
Which group of costs is the most accurate example of variable cost?
Payments for materials, fuel, power, and transportation services
Which best describes economic costs?
Payments that must be made to obtain a resource
What are the components of plant capacity?
Size of the factory building Amount of machinery and equipment
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.
What is the primary cause of diseconomies of scale?
The difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer
Which of the following sections of a long-run average total cost curve depicts constant returns to scale?
The flat section
Which of the following best illustrates diseconomies of scale?
The increase in average total costs as a firm expands the size of its plant in the long run
Over what period of time can an industry and firms in that industry adjust all resource inputs used?
The long run
What is the definition of total product (TP)?
The total quantity, or total output, of a particular good or service produced
cost is the sum of fixed cost and variable cost at each level of output.
Total
Which of the following sets of values are necessary to compute average total cost (ATC)?
Total cost and output Total variable cost, total fixed cost, and output Average fixed cost and average variable cost
What methods can be used to calculate average total cost?
Total cost divided by output (Q) Average fixed cost plus average variable cost
How is average fixed cost determined?
Total fixed cost divided by output
What is the term for the total quantity of a specific good produced?
Total product
What is the definition of average variable cost?
Total variable cost divided by output (Q)
Which of the following are examples of variable costs? (Check all that apply.)
Transportation services payments Fuel costs Materials costs
True or false: Heavy industries, such as aluminum and steel, exhibit the pattern of declining long-run average total costs.
True
True or false: Hourly labor, raw materials, and fuel are examples of resources a firm can easily adjust.
True
True or false: In an industry with an extended range of constant returns to scale, firms of varying sizes can coexist and be equally profitable.
True
Average fixed cost equals total fixed cost divided by the ______.
amount of output
The figure illustrates that in an industry with an extended range of returns to scale, firms of varying sizes can coexist and be equally profitable.
constant
The figure illustrates that in an industry with an extended range of returns to scale, firms of varying sizes can coexist and be equally profitable.
constant.
A farmer cultivates a cornfield by fertilizing and increases the farm's yield to 50 bushels per acre. Additional cultivation increases the yield but at a decreasing rate. At some point, additional cultivation will not lead to any additional output per acre. This is an example of the law of ______.
diminishing returns
Less coordinated decision making by executives and supervisors leads to of scale.
diseconomies
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
Start-up firms achieve of scale from learning by doing and through increased specialization of labor, management, and equipment.
economies
Learning by doing contributes to a firm's ______.
economies of scale
Accounting profit is what remains after a firm has paid its _______ costs.
explicit
From the industry's viewpoint, the run includes enough time for existing firms to dissolve and leave the industry or for new firms to be created and enter the industry.
long
In the run, firms are able to adjust all resources.
long
Economies of scale explain the downward-sloping part of the ______ curve.
long-run average-total-cost
A marketing supervisor works in a small plant where she performs a range of duties. As the company grows and hires additional supervisors, she is able to spend the bulk of her time in her area of expertise. In this example, the company has increased its ______.
managerial specialization
If all workers are hired at the same price, the marginal cost of producing each extra unit of output falls provided the ______ of each additional worker is rising.
marginal product
Average product declines when ______.
marginal product is less than average product
The marginal-product curve is a mirror image of the ______ curve.
marginal-cost
In heavy industries, small firms are unlikely to realize ______ and will be unable to compete with large-scale producers.
minimum efficient scale
The lowest level of output at which a firm can minimize long-run average costs is called ______.
minimum efficient scale
A ______ is a relatively rare market situation in which average total cost is minimized when only one firm produces the good.
natural monopoly
Average variable cost equals total variable cost divided by total ______.
output
A firm cannot avoid paying fixed costs in the run.
short
One explanation for the U-shaped average variable cost curve is that greater ______ yields more efficiency and variable cost per unit of output declines
specialization
True or false: Implicit costs are the firm's opportunity costs of using its self-owned, self-employed resources.
true
Which of the following illustrates constant returns to scale?
A firm's 10% increase in given inputs, causing a proportionate 10% increase in output
What is average total cost if total cost is $100, variable costs are $75, fixed costs are $25, and output is 25?
$4
If total cost rises from $300 to $700 when one additional unit of output is produced, what is the marginal cost?
$400
If total variable cost is $100, total fixed cost is $100, and output is 10, what is average variable cost?
$10
What is the average fixed cost if total fixed cost is $100, total variable cost is $50, and output is 20?
$5
Your company's total sales revenue for the month is $150,000; the costs to produce your products are $12,000 for rent, $6,000 for utilities, and $42,000 for employee wages. What is your accounting profit?
$90,000
An increase in the price of labor has no effect on which cost curve?
Average-fixed-cost
How is total cost calculated?
By adding total fixed cost and total variable cost
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 ______.
diminishing returns
A firm's insurance premiums are generally considered costs.
fixed
When total product declines, marginal product ______.
is negative
A firm's decision about what output level to produce is typically a ______ decision.
marginal
When total product is at its maximum, marginal product is ______.
zero
The size of the factory, the amount of machinery and equipment, and other capital resources define . (Enter one word in each blank.)
plant size
Variable costs change with the level of
production
Increased labor ______ becomes more achievable as a plant increases in size.
specialization
The U-shape of the long-run average-total-cost curve results from which of the following?
Diseconomies of scale Economies of scale
What is another term for economies of scale?
Economies of mass production
costs are the monetary payments a firm makes to purchase resources from others.
Explicit
Which of the following is an example of labor specialization?
Hiring more workers in order to subdivide tasks Assigning each worker one task instead of five or six
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.
Which of the following result from managerial specialization?
Lower unit costs Greater efficiency
What type of cost can be saved by not producing the last unit?
Marginal
What happens to marginal product when total product is increasing but at a decreasing rate?
Marginal product is positive but falling.
What happens to marginal product when total product is increasing at an increasing rate?
Marginal product is rising.
Which of the following resources can a firm easily and quickly adjust?
Raw materials Hourly labor Fuel
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
What happens to fixed costs when the level of production output reaches zero?
They remain unchanged.
When is marginal cost at its minimum?
When marginal product product is at its maximum
Which of the following worker productivity factors often lead to diseconomies of scale?
Worker alienation from the employer Increased opportunities to shirk and avoid work
In a manufacturing plant with no labor, adding labor increases output and marginal product. However, at some point increasing labor will no longer increase output at the same rate. Adding even more labor eventually causes marginal product to decline, because there will simply not be enough space for so many workers to work. This is an example of the law of returns.
diminishing
The marginal cost curve's shape is a consequence of the law of returns.
diminishing
Average total cost goes up when marginal cost is greater than ______.
average total cost
The law of ______ returns states that as successive units of a variable resource are added to a fixed resource, beyond some point, the marginal product will decline.
diminishing