chapter 7
if total product for each of five units of labor is 10,20,30, and 34, respectively, the marginal product of the third unit is
4
total fixed cost divided by the level of output yields
average fixed costs per unit
the marginal product of labor is the
change in output from using one more unit of labor
as a firm expands into overseas markets, information problems and the complexity of operating within many varied cultures and economies may result in
diseconomies of scale
if a firm triples all of its inputs and its output doubles, it is said to be experiencing
diseconomies of scale
the long run is a period of time
during which all resources are variable
the short run is a period of time
during which at least one resource is fixed
the difference between a firm's total revenue and what must be paid to attract resources from their best alternative use is called
economic profit
if the money store earns a normal profit this year, its
economic profit is zero
generally, as a movie theater adds more screens its average costs fall. The movie theater can be said to experience
economies of scale
which of the following would not be considered a fixed cost for a law firm?
paper for the photocopy machine
a firm's long-run average cost curve is also called its
planning curve
when diminishing marginal returns set in, marginal product is
positive and decreasing
when a firm is experiencing diminishing marginal returns, marginal cost is
rising
for each size of plant a manufacturer could build, there is a different
short-run average total cost curve
Suppose a lawyer leaves his $50,000-a-year job and starts his own firm breeding pit bulls. In the first year, his accounting profit is $70,000. The lawyer finances his new business with $100,000 from his savings account, which had earned 10 percent interest. His economic profit is
$10,000
A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his implicit costs?
$26,000
Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make lace doilies. If his revenue from the sale of these doilies is $50,000 and his materials cost $20,000, then his economic profit is
$5,000
A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs?
$52,000
which of the following probably has the shortest long run?
a law firm
which of the following is a fixed cost of preparing meals?
a microwave oven
an implicit cost is
an opportunity cost
a variable cost is one that changes
as output changes
the law of diminishing marginal returns states that
as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.
the marginal cost curve intersects the average variable cost curve (AVC)
at the AVC curve's minimum point
if a firm shuts down in the short run and produces no output, its total cost will be
equal to total fixed cost
cash payments for steel to be used in production would be an example of
explicit costs
all other things constant, higher implicit cost results in lower accounting profit.
false
if the marginal product of an input is negative, the total product must also be negative.
false
The Toys-R-Danger-Us Toy Company can produce 500 water pistols for a total cost of $1,400. If the variable cost of producing 500 water pistols is $1,300, then
fixed cost must be $100
total cost is calculated as
fixed cost plus variable cost
the opportunity cost of a resource
includes both explicit and implicit cost
when diminishing marginal returns set in, total product
increases at a decreasing rate
in the range of increasing marginal returns, total product is
increasing at an increasing rate
in the short run, which of the following is likely to be a variable cost to a physician?
insurance forms
empirical studies of production suggest that the longest average cost curve
is U-shaped
as output expands, the slope of the average total cost curve
is first negative and then positive
opportunity cost usually
is involved in calculating economic profit
if General Motors is earning only a normal profit,
it is breaking even
which of the following is a fixed cost of driving a car?
license plates
which of the following is true in the short run at the output level where average cost is at its minimum?
marginal cost equals average total cost
which of the following statements is true? If the marginal product of labor diminishes,
marginal cost rises
to maximize profit in the long run, a firm must
minimize the cost of producing any given amount of output
if General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then
the firm is experiencing diseconomies of scale
bart operates a lemonade stand in front of his house. His father works at the Springfield Nuclear Power plant. Which of the following is most likely to be true?
the long run is longer for the power plant than it is for the lemonade stand
which of the following is not an explicit cost?
the value of a firm owner's time
zipco's accounting profit is equal to its
total revenue minus explicit costs
economic profit is defined as
total revenue minus what must be paid to resources to attract them from their best alternative use
if all my savings are invested in my consulting company, an increase in the interest rate increases my implicit costs
true
in the long run, all inputs are variable
true
in the long run, all of a firm's inputs are variable
true
marginal cost indicates how much total cost increases if one more unit is produced or how much total cost drops if production declines by one unit
true
when marginal product is negative, the slope of the total product curve must be negative
true
on a graph of production costs, the vertical distance between the fixed cost curve and the total cost curve at a specific quantity represents
variable cost
the length of time that represents the long run
varies from industry to industry
the law of diminishing marginal returns is first evident in the following table
when the third unit of labor is added
