Chapter 13
The amount of money that a firm receives from the sale of its output is called
total revenue.
Economic profit
will never exceed accounting profit.
Economic profit is equal to (i) total revenue - (explicit costs + implicit costs). (ii) total revenue - opportunity costs. (iii) accounting profit + implicit costs.
(i) and (ii)
Marginal cost equals (i) change in total cost divided by change in quantity produced. (ii) change in variable cost divided by change in quantity produced. (iii) the average fixed cost of the current unit.
(i) and (ii)
Which of the following is an implicit cost? i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space
(i) only
Accounting profit is equal to (i) total revenue - implicit costs. (ii) total revenue - opportunity costs. (iii) economic profit + implicit costs.
(iii) only
Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is
8 units of output
Which of these assumptions is often realistic for a firm in the short run?
The firm can vary the number of workers it employs, but not the size of its factory
Marginal cost tells us the
amount by which total cost rises when output is increased by one unit.
The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is
an implicit cost
Fixed costs can be defined as costs that
are incurred even if nothing is produced.
Marginal cost is equal to average total cost when
average total cost is at its minimum.
One would expect to observe diminishing marginal product of labor when
crowded office space reduces the productivity of new workers.
The marginal product of labor is equal to the
increase in output obtained from a one unit increase in labor.
A production function is a relationship between
inputs and quantity of output
In the long run,
inputs that were fixed in the short run become variable.
Economies of scale occur when
long-run average total costs fall as output increases.
Diseconomies of scale occur when
long-run average total costs rise as output increases
When a firm's only variable input is labor, then the slope of the production function measures the
marginal product of labor
Economists normally assume that the goal of a firm is to
maximize its profit
Explicit costs
require an outlay of money by the firm
John owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?
the cost of shoe polish
For a certain firm, the number of workers hired is the only variable input. When this firm's production function is illustrated on a graph
the number of workers is measured on the horizontal axis and the quantity of output is measured on the vertical axis
Average total cost is equal to
total cost/output
Total revenue equals
total output multiplied by price per unit of output.