Ch. 11 - ECON 102
Which of the following firms produce at the minimum efficient scale?
Dell produces 100 computers a week at which its long run average total cost is minimized.
______ are features of a firm's technology that lead to rising long-run average cost as output increases that arise because of _______.
Diseconomies of scale; the challenge of managing a large enterprise
What are economies of scale and diseconomies of scale? How do they arise? What do they imply for the shape of the LRAC curve? ______ are features of a firm's technology that lead to falling long-run average cost as output increases that arise because of _______.
Economies of scale; greater specialization of both labor and capital
Which of the following illustrates economies of scale, diseconomies of scale, and constant returns to scale? Liza's average total cost changes from $4.50 to $2.20 when she increases salad production from 7 to 9 an hour. Sam's average total cost changes from $1.30 to $2.80 when he increases smoothie production from 5 to 8 gallons an hour. Tina's average total cost remains at $3 when she increases pizza production from 12 to 13 an hour.
Liza faces economies of scale; Sam faces diseconomies of scale; Tina faces constant returns to scale.
Which of the following is an example of sunk cost?
Ned spent $50,000 to train employees at his start-up firm.
Choose the statement that is correct.
The ATC curve eventually slopes upward because average variable cost eventually increases.
In the short run, ______. In the long run, ______.
a firm's plant is fixed; a firm can change its plant
What does the law of diminishing returns imply for the shape of the marginal cost curve? The marginal cost curve slopes downward at low outputs because of _______. The marginal cost curve eventually slopes upward because of _______.
greater specialization and division of labor; the law of diminishing returns
If marginal cost exceeds average total cost and output increases, average total cost _______ and average variable cost _______.
increases; increases
Why is a sunk cost irrelevant to a firm's current decisions? A sunk cost is irrelevant to a firm's current decisions because _______.
it cannot be changed by any current decision
Marginal product eventually diminishes because _______.
more and more workers are using the same capital and working in the same space
When economies of scale are present, the LRAC curve ______. When diseconomies of scale are present, the LRAC curve ______.
slopes downward; slopes upward
A firm's minimum efficient scale is the _______.
smallest quantity of output at which long-run average cost reaches its lowest level
Along the total product curve, output increases as _______.
the quantity of labor increases and the plant size remains constant
The only costs that influence a firm's current decisions are _______ .
the short-run cost of changing its labor inputs and the long-run cost of changing its plant
That law of diminishing returns states that as a firm uses more of a _______ factor eventually diminishes.
variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable
The law of diminishing marginal returns states that as a firm uses more of a _____ factor of production with a given quantity of the _____ factor of production, the _____ product of the _____ factor eventually diminishes.
variable; fixed; marginal; variable
Which of the following are examples of short run and long run decisions?
Starbucks' has hired more labor to meet the increasing demand. Starbucks' has opened another store to meet the increasing demand.
When marginal product exceeds average product, ______ product is increasing. When average product exceeds marginal product, ______ product is decreasing.
average; average
Does the law of diminishing returns apply to capital as well as labor? Explain why or why not. Diminishing returns to capital _______ occur as the quantity of capital increases because for a given quantity of _______ incremental amounts of output.
do; labor each additional unit of capital will result in smaller
The U shape of the average total cost curve arises because of spreading total _______ cost over a larger output and eventually _______ returns.
fixed; diminishing
When Sam increases smoothie production from 4 gallons to 5 gallons, his total cost of production increases from $32.50 to $36.85. Calculate Sam's marginal cost of producing smoothies.
$4.35
Tina employs 4 people in her pizza store, where she produces 12 pizzas an hour. Her total fixed cost, total variable cost, and total costs of pizza production per hour are $15, $19.40, and $34.40 respectively. Calculate Tina's average fixed cost, average variable cost and average total cost.
$1.25; $1.62; $2.87
Long-run average cost curve is a curve that shows the _____ average total cost at which it is _____ to produce each output when the firm has had sufficient time to change both its plant size and labor employed.
lowest; possible
The long-run average cost curve is made up of the segments of individual average ______ cost curves with the lowest average ______ cost for a given output.
total; total
A firm's production function shows the relationship between the maximum output attainable and the ______.
quantities of both labor and capital
Total product is the total _____ of a good produced in a given period. Marginal product is the change in _____ product that results from a one-unit increase in the _____. Average product is the total product divided by the _____.
quantity; total; quantity of labor employed; quantity of a factor of production
An increase in the wage rate that a firm pays its workers _______.
shifts both its marginal cost curve and its average total cost curve upward
The past expenditure on a plant that has no resale value is called a _______ cost.
sunk
What does a firm's LRAC curve show? How is it related to the firm's short-run ATC curve? The long-run average cost curve is the relationship between the lowest attainable average total cost and output, when plant size is ______ and labor is ______.
varied; varied
Which of the following illustrates diminishing marginal returns?
Hiring more workers decreases the productivity of each additional worker.
Total cost is the cost of _____ by a firm. Total fixed cost is the cost of the _____ - the cost of _____, _____, and _____. Total variable cost is the cost of the _____ - the cost of _____.
all the factors of production used; firm's fixed factors of production; land, capital; entrepreneurship; firm's variable factor of production; labor
The output at which average product is a maximum is the same output at which ______ is a minimum.
average variable cost
Marginal cost _______.
decreases at low outputs and increases at high outputs
