Econ Exam 2 Prep

(Figure 21.5) Economies of scale occur in the following range of factory sizes

#1 through #3.

If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is

$1.33.

(Table 21.2) The marginal cost per unit between 20 and 30 units of output is

$1.80.

(Table 21.5) The total variable cost of 2 units of output is

$12.

(Table 21.4) At 2 units of output, the average variable cost is

$13

(Table 21.5) Total fixed costs are equal to

$15.

(Table 21.4) At 4 units of output, total fixed costs are

$16.00.

(Table 21.5) The total cost of 3 units of output is

$30.

(Table 21.5) The total variable cost of the first unit of output is

$8.00.

(Table 22.1) Suppose the entrepreneur could earn $1,000 as an employee elsewhere. This means the accounting profit is

$925.

(Table 22.1) The accounting profit is equal to

$925.

(Table 21.4) For the output levels, the minimum of the average variable cost curve occurs at a production rate of

2 units per day.

(Table 21.1) What is the marginal physical product of the second unit of labor?

20

(Figure 22.1) The profit-maximizing output for this firm is

200 units.

(Table 21.4) For the output levels, the minimum of the average total cost curve occurs at a production rate of

3 units per day.

(Table 21.3) How many units of output can be produced when one unit of labor is employed?

30

(Figure 21.2) What is the total cost of 120 units?

34,560

(Figure 22.3) For a perfectly competitive firm, at a market price of $23, the total profits are maximized at an output of

39

(Figure 21.4) A firm that produces between 600 and 800 units per period should choose a plant with a short-run average total cost function of

ATC2 only.

(Figure 21.4) A firm that produces over 800 units of output should choose a plant with which short-run average total cost function?

ATC3 only

Which of the following statements about the relationship between economic costs and accounting costs is true?

Accounting costs are always less than or equal to economic costs.

(Figure 22.2) For a perfectly competitive firm, the profit-maximizing quantity of output is

D

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.

Dad says her cost is $31,000, and Mom says her cost is $47,600.

Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?

In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.

a. Complete the following cost schedule by computing marginal cost, average fixed cost, average variable cost, and average total cost.

MC = Total cost - Previous total cost AFC = (Total cost - Total fixed cost)/ Output

A competitive firm should always continue to operate in the short run as long as

MR > AVC.

Profit per unit is equal to

P - ATC.

Which of the following characterizes a competitive market?

The market has a downward-sloping demand curve.

The sum of fixed cost and variable cost at any rate of output is the

Total cost

If the marginal cost curve is rising, which of the following must be true?

Total costs must be rising.

Diminishing returns occur because

a firm increases the amount of a variable input without changing a fixed input.

Suppose a company incurs the following costs: labor, $1,500; equipment, $400; and materials, $1,600. The company owns the building, so it doesn't have to pay the usual $1,800 in rent. a. What is the total accounting cost? b. What is the total economic cost? c. If the company sold the building and then leased it back, what would be the change in (i) accounting costs? (ii) economic costs?

a) 3500 b) 5300 i) 1800 ii) 0

Complete the following table for a perfectly competitive firm and assume the firm can only produce in 5-unit increments (i.e., 5, 10, 15, 20, or 25 units). a. If the price is $7, how much output will the firm supply? (Hint: Use the profit-maximizing rule and enter the quantity in the discrete 5-unit increment as shown in the table.) c. The firm will shut down if the price falls below which price?

a. 15 units c. Less than $3

Assume the price of silk ties in a perfectly competitive market is $21 and that the typical firm confronts the following costs: a. What is the profit-maximizing rate of output for the firm? (Hint: Use the profit-maximizing rule.) b. How much profit does the firm earn at that rate of output? c. If the price of ties fell to $15, how many ties should the firm produce? d. At what price should the firm shut down?

a. 8 b. 46 c. 5 d. Less than $7

(Figure 21.5) Diseconomies of scale begin to occur

after the third factory.

(Figure 22.3) For a perfectly competitive firm, if the market price is $10,

an economic loss will occur.

Implicit costs

are the value of resources used for which no monetary payment is made.

Technical efficiency is achieved when a firm produces

at an amount indicated by a point on the production function.

Suppose a firm has four sewing machines and can vary only the amount of labor input. a. Compute the marginal physical product. b. At what amount of labor input does the law of diminishing returns first become apparent in the table of marginal physical product? c. Is total output still increasing when MPP begins to diminish? d. What is the value of MPP when output no longer increases?

b. 3 units c. Yes d. 0

Given the productivity information in the table, a. Calculate marginal physical product (MPP). b. When does marginal productivity first diminish?

b. When worker 2 is hired.

The marginal physical product is the

change in total output associated with one additional unit of input.

A firm that makes zero economic profits

covers all its costs, including a provision for normal profit.

In making a production decision, an entrepreneur

decides what level of output will maximize profits.

The average fixed cost (AFC) curve

declines as long as output increases.Correct

When the short-run marginal cost curve is upward-sloping,

diminishing returns occurs with greater output.

Greater-than-normal profit represents

economic profit.

As In-N-Out Burger increases the number of employees for a specific restaurant, the

efficiency will suffer as the restaurant becomes too crowded with employees.

In defining economic costs, economists emphasize

explicit and implicit costs while accountants recognize only explicit costs.

Which of the following costs do not change when output changes in the short run?

fixed costs

Sam's surf shop has total costs of $2,000 when it is not producing any surfboards. This means that

fixed costs are $2,000.

In the short run, when a firm produces zero output, the total cost equals

fixed costs.

Which of the following is a factor of production for the Little Biscuit Bread Company?

flour

The short run is the time period

in which some costs are fixed.

Economic cost

includes both implicit and explicit costs.

For perfectly competitive firms, price

is equal to marginal revenue.

Marginal cost

is the change in total cost associated with a one-unit increase in production.

In the short run, which of the following is most likely a variable cost?

labor and raw materials costs

Economic profit is

less than accounting profit by the amount of implicit cost.

Intel's chief executive says the company might expand the technology it is using in its planned $2.5 billion chip-manufacturing factory in China if the U.S. government allows it, underscoring the technology giant's ambitions in the world's fourth-biggest economy. The Intel executive is making a

long-run decision and therefore an investment decision.

If the marginal physical product (MPP) is falling, then the

marginal cost of each unit of output is rising.

Ceteris paribus, the law of diminishing returns states that beyond some point, the

marginal physical product of a factor of production diminishes as more of it is employed with a given quantity of other inputs.

The most desirable rate of output for a firm is the output that

maximizes total profit.

The profit motive can encourage businesses to do all of the following except

mistreat customers.

Market structure is determined by the

number and relative size of the firms in an industry.

The measure of the most desired goods and services that is foregone in order to obtain something else is the

opportunity cost.

A firm's total revenue can be determined by

price times quantity.

The fact that a perfectly competitive firm's total revenue curve is an upward-sloping straight line implies that

product price is constant at all levels of output.

Which of the following is most likely a fixed cost?

property taxes

Which of the following is generally a fixed cost?

property taxes on land used in production

In the long run, which of the following is likely to be a variable cost?

rent, wages, and all other costs in the long run

Marginal cost

rises as a direct result of diminishing returns.

The market price for any good or service sold in a perfectly competitive market is determined by

supply and demand.

Which of the following is always downward-sloping?

the average total cost curve when it is above the marginal cost curve

Normal profit implies that

the factors employed are earning as much as they could in the best alternative employment.

(Figure 22.3) For a perfectly competitive firm, if the market price is $23,

the firm will have above-normal profits.

Which of the following is the slope of the production function with respect to an input?

the marginal physical product of the input

The best measure of the economic cost of doing your homework is

the most valuable opportunity you give up when you do your homework.

Which of the following is most likely a fixed cost?

the rent for a factory

Which of the following should not be included when calculating accounting profit?

the return on the next best alternative investment opportunity

Economies of scale are reductions in average

total cost that result from using operations of larger size.

Economic profit is the difference between

total revenues and total economic costs.

At any given rate of output, the difference between total cost and fixed cost is

variable cost.

In the short run, when a firm produces zero output, the variable cost equals

zero