The production process and costs

in the production process, the manager must do which of the following?

- ensure the firm operates on the production function - establish the correct level of inputs

when inputs are somewhat substitutable,

- isoquants are somewhere in between Leontief and linear. - the rate at which the manager can substitute among inputs changes along an isoquant.

with respect to the short run average cost curves, what is true of the long run average cost curve?

- it equals short run average cost when short run curves use fixed inputs optimally. - it lies above no point on the short run average cost curves.

a production function can include many inputs. which of the following are the most commonly used inputs?

- labor - capital

the marginal rate of technical substitution between labor and capital is

- the absolute value of the slope of the isoquant. - MPl/MPk - the rate at which labor and capital can be substituted for each other.

a small sandwich shop has 8 employees and produces 216 sandwiches per day. After hiring another employee (9 total), the shop produces 231 sandwiches per day. the marginal product of the 9th labor (MPl) equals __ sandwiches.

15

assume that each unit of labor costs $500. I f a worker's marginal product of labor (MPl) equals 115 and the firm sells its product for $6.00, the value of the additional output exceeds the cost of hiring the worker by $___

190

suppose a firm produces 1000 units of a good. If fixed costs (FC) equal $2500 and variable costs (VC) equal $3700 at that output level, average total cost (ATC) of each unit is equal to $_____

6.2

suppose a cost function is given by C(Q) = 3Q + 4Q^2. If output equals 12, the value of marginal cost equals $__.

99

what happens to average fixed cost (AFC) as output declines?

AFC increases

A firm that always employs two workers for each unit of capital follows which type of production function?

Leontief

C(Q)/Q , defines

average total cost.

fixed cost (FC) equals

TC - VC

The expression, FC/Q , defines

average fixed cost

the measure of output per unit of input is called

average product

VC(Q)/Q , defines

average variable cost

in a production function, the input that refers to machinery is called _____

capital

which of the following production functions imply isoquants that have a diminishing marginal rate of technical substitution?

cobb-douglas

a production function that assumes that inputs are relatively substitutable is called a ___.

cobb-douglas production function

suppose a firm expands its output and experiences the same level of long-run average cost. What is this condition called?

constant returns to scale

what exists when an increase in the output of one product reduces the marginal cost of a second product?

cost complementarity

the sum of all variable and fixed costs is the firm's ______.

cost function

the multiproduct cost function assumes that all inputs are utilized _____

efficiently

if marginal cost (MC) is less than minimum average variable cost (AVC), then MC is

either increasing or decreasing.

to minimize the cost of producing a given level of output, the marginal product per dollar spent should be _____ for all inputs.

equal

To maximize profits, a firm manager should produce a level of output such that the marginal benefit is ________ marginal cost.

equal to

costs that do not change when output changes are called _____ costs.

fixed

graphically, what is the distance between total cost (TC) and variable cost (VC)?

fixed cost

what is another name for the leontief production function?

fixed proportions production function

when each additional unit of an input increases total output by more than did the previous unit, the firm is experiencing:

increasing marginal returns.

the short-run production function is generally expressed as a function of which of the following inputs?

labor only

in a production function, the input that refers to workers is called

labor.

the downward-sloping portion of the VMPl defines the demand for _____ by a profit maximizing firm. It slopes downward due to _____.

labor; diminishing marginal returns

when the price of labor rises, firms have a tendency to use

less labor and more capital.

according to the law of diminishing marginal rate of technical substitution, as a producer uses _____ of an input, _____ of the other input must be used to achieve the same level of output.

less; more

the ___ run is a period of time during which a manager can change all factors of production.

long

the cost of producing another unit of output is called _____ cost.

marginal

what is the term given to the ratio of the marginal products of labor and capital?

marginal rate of technical substitution

which of the following describes the rate at which labor and capital can be substituted for each other?

marginal rate of technical substitution

jack operates a small, farm-to-table, organic rice packaging plant. Jack hired another employee and saw output fall from 300 to 297 boxes of rice per day. What is this an example of?

negative marginal returns

jack operates a small, farm-to-table, organic rice packaging plant. jack hired another employee and saw output fall from 300 to 297 boxes of rice per day. What is this an example of?

negative marginal returns

in a linear production function, inputs are

perfect substitutes

which of the following describes the maximum output that can be produced with a fixed set of inputs?

production function

the _____ run is a period of time during which at least one factor of production is fixed.

short

a cost that is incurred and unrecoverable is called a ____ cost.

sunk

suppose capital K, is on the vertical axis and labor L, is on the horizontal axis in a graph. Which of the following would be true if the price of labor, w, increased?

the isocost line rotates clockwise

the minimum possible cost of producing each output level with fixed and variabale factors is given by

the short-run cost function

at the cost-minimizing input mix,

the slope of the isoquant equals the slope of the isocost line.

what must be true about combinations of labor and capital along a given isoquant?

they all must produce the same amount of output

which of the following defines the maximum amount of output that can be produced with a given set of inputs?

total product

the value of the output produced by the last unit of a particular input is called

value marginal product.