AG ECON- Exam 3 Open Book

A farmer has cash costs of $1.50/bu for his corn. The opportunity cost of his labor is $0.30/bu and the opportunity cost of his land (which he owns) is $0.40/bu. If he sells his corn for $2.50/bu, then his economic profits are

$0.30/bu

Total costs

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

Total revenue

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

Variable costs

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

Monopolistic competition

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

In economics, a firm that faces no competitors is referred to as _________________.

a monopoly.

The ______________ of all firms can be broken down into some common underlying patterns.

cost structure

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development.

In a _______________ return production response, each additional unit of input yields an increase in production, but at a decreasing rate.

decreasing

Which of the following is NOT a characteristic of a production function?

depends on price of the product.

Accounting profits and economic profits

differ with regards to expenditures versus values.

At product prices between the shut-down point and the break-even point, the profit maximizing, perfectly competitive firm

earns negative profits.

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

If the efficiency of the fixed factor is increasing and the efficiency of the variable is decreasing as additional units of the variable factor are added to the fixed factor, then the

firm is in the rational range of production.

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

A production function

illustrates maximum technical or physical efficiency of the fixed input at the maximum total product.

A production function

illustrates variable input proportions.

variable costs

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

Total costs

include all spending on labor, machinery, tools, and supplies purchased from other firms.

At the initial phase (i.e., at the lowest output levels) of a production function, output

increases at an increasing rate.

In a __________________ return production response, each additional unit of input returns a greater return than the previous unit.

increasing

The total variable cost curve

is a mirror image of the production function.

Total profits

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

The profit maximizing/loss minimizing firm will cease production when the price of the product

is less than minimum average variable cost.

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

Within the rational range of production,

marginal physical product is always positive.

When total physical product is maximized,

marginal physical product is zero.

In the rational range of a production function, as use of the variable input increases,

marginal product decreases but is positive.

The firm will engage in loss minimizing behavior if the

market price is greater than the shut-down price and less than the break-even price

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

monopolistic competition.

If the price of the product increases, ceteris paribus, the profit maximizing firm will use ________ of the variable input and produce ________ of output.

more; more

In the rational range of production, the efficiency of the fixed factor is ________ while that of the variable factor is ________. A) increasing; increasing B) positive; negative C) decreasing; decreasing D) decreasing; increasing E) none of the above

none of the above

Diminishing marginal returns

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

A difference between economic profits and accounting profits would arise in the case of

opportunity cost.

The word "average" as in average revenue or average total cost means

per unit of output

The "average" in average variable cost and average revenue means

per unit of output.

In the trilogy of average, total, and marginal, "total" always means

per unit of the fixed input.

If the market price of the product is less than the minimum average total cost, the rational, perfectly competitive firm (in the short run) should

produce at a loss if possible in the rational range of production.

At product prices less than the minimum average total costs, the perfectly competitive firm will

produce if the price is greater than the minimum average variable cost.

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

A short-run relationship emphasizing the variable proportions between fixed and variable factors is a(n)

production function

For a perfectly competitive, profit maximizing firm, an increase in the fixed costs, ceteris paribus, would cause the

profits of the firm to fall

Production functions

shift with a change in technology.

Output per unit of the fixed input is called

total physical product.

A production function describes the relationship between units of a variable input used in combination with a bundle of fixed factors and

total product.

Output per unit of the fixed factor of production is called

total product.

In computing economic profit,

unpaid resources are valued at their opportunity cost.

A production function is...

A) a relationship between units of a variable input and units of output associated with a given fixed input bundle. B) a physical relationship determined by the technology used in the production process. C) represented as Y = f(X).

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs? A) costs that increase with the quantity produced B) costs of research and development C) costs related to labor expenditures D) costs related to physical inputs

Costs of research and development.

For a firm in perfect competition, at the minimum of the average total cost curve

MC = ATC

In order to maximize short-run profit, the perfectly competitive firm should adjust output to that point at which

MR = MC

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.

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

Variable costs

Farmer Dusty has 200 acres of corn land he plans to plant in the spring. He is trying to decide how much fertilizer to apply during the growing season. A) His profit maximizing decision will be somewhere within the rational range of the production function. B) At the profit maximizing level of fertilizer use, both the average product and the marginal product of fertilizer will be declining. C) Knowledge of the production function alone is not sufficient information for making the decision. D) This is an example of short-run decision making. E) all of the above

all of the above

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

average cost

All costs of production per unit of output is

average total cost.

The rational range of production begins at that level of output at which

average variable costs are minimized.

A change in the fixed costs of the firm will cause a

change in average total costs at the profit maximizing output level.

The rational range of production begins at the

shut-down point.

The "law of diminishing marginal product"

states that output eventually increases at a decreasing rate.

At the break-even point

the economic profits of the firm are zero.

If marginal revenue is above the minimum average total cost, then

the firm is earning economic profits.

At prices above the shut-down price,

the firm will produce.