economics chapter 4
when a company employs 6 workers, it produces 42 units of output and when it employs 7 workers, it produces 56 units of output. the marginal product of the 7th worker is
14 units of output
a firms variable costs are always larger than its fixed costs
false
which cost does not change when output changes
fixed cost
the long run average cost curve shows that i: an increase in capital always increases the firms average total cost ii: an increase in the quantity of labor must accompany each increase in the quantity of capital
neither i nor ii is correct
if the cost of capital is $32 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 16 units per hour, and the marginal product of labor is 7.5 units per hour, to minimize its costs, the firm should ___
not change the amount of labor or capital
in the short run when a firm produces no output, the firms fixed cost is ___ and its total cost is ___
not zero, not zero
a firm produces outputs using only labor and capital. MPl is the marginal product of labor, W is the cost of a unit of labor MPk is the marginal product of capital and R is the cost of a unit of capital. to minimize the cost of producing a desired quantity of output, the cost-minimizing rule is to use the amounts of labor and capital such that
MPl/W = MPk/R
if labor is the only variable input, W is the cost of a worker, and MPL is the marginal product of labor, then the cost of producing one more unit of output- the marginal cost (MC) is equal to
W/MPL
average fixed cost (AFC) equals average total cost (ATC) minus average variable cost (AVC) or AFC=ATC-AVC
true
economies of scale can be the result of increased specialization
true
for any quantity, in the short run the average total cost (ATC) always exceeds the average variable cost (AVC)
true
if MPl/W > MPk/R, spending a dollar on labor produces more output than spending a dollar on capital
true
if a firm has decreasing returns to scale, it is producing at a point with diseconomies of scale
true
if a firm uses several different inputs to produce its output and if the marginal product of some inputs divided by their price exceeds the marginal products of other inputs divided by their price, the managers can reduce their costs by using more of the first group of inputs and less of the second
true
if the cost of a fixed input increases, the marginal cost does not change
true
if the marginal cost (MC) exceeds the average total cost (ATC) then when output increases the average total cost rises
true
if the wage rate a firm pays its workers rises, then the firms marginal cost curve shifts upward
true
learning by doing means that if a firm produces more of a particular product, its costs of producing that product fall
true
sunk costs cannot be variable costs
true
the competitive return is the opportunity cost of the owners inputs to their business
true
the long-run average cost shows the minimum average cost of producing any given quantity of output when all inputs can be changed
true
the marginal cost (MC) curve crosses the average total cost (ATC) curve at the minimum point on the average total cost curve
true
the marginal product of capital equals the change in output from changing capital by one unit while not changing the use of any other input
true
the region of output over which the long-run average cost (LAC) curve is horizontal is the region of output with constant returns to scale
true
the short run is the period of time during which at least one input is fixed
true
you manage a firm that produces output using only labor and capital. the marginal product of labor is 10 units of output per worker, the cost of a worker is $200 per worker, the marginal product of capital is 30 units of output per unit of capital, and the cost of a unit of capital is $400. to minimize the cost of producing the desired quantity of output you should
use more capital and less labor
a firm produces output using only labor and capital. MPl is the marginal product of labor, W is the cost of a unit of labor, MPk is the marginal product of capital and R is the cost of a unit of capital if MPl/W > MPk/R to minimize the cost of producing the desired quantity of output the firm should
use more labor and less capital
all of the following are true regarding variable costs except which one
variable costs are the sum of the costs paid for all inputs
in the short run, labor is a ___ input and capital is a ___ input
variable, fixed
in the long run, labor is a ___ input and capital is a ___ input
variable, variable
when the long-run marginal cost equals the long-run average cost, the long-run average cost is ___
at its minimum
all of the following cost curves have a U-shape except which one
average fixed cost
if the price of a variable input increases, all of the following curves will shift upward except which one
average fixed cost
suppose a technological change allows a firm to produce more output from the same amount of inputs. this technological change shifts the
average total cost, average variable cost, and marginal cost curves downward
an increase in the wage rate shifts the
average variable cost curve and marginal cost curve upward
a firms long-run average cost (LAC) curve shifts down if i: the cost of one input falls ii: the costs of all inputs fall
both i and ii are correct
an increase in the cost of a variable input shifts the ___ upward i: average total cost curve ii: marginal cost curve
both i and ii are correct
average total cost equals i: total cost (TC) divided by output (Q) or TC/Q ii: the sum of average fixed cost (AFC) and average variable cost (AVC) or AFC+AVC
both i and ii are correct
the marginal cost curve goes through the minimum point of the i: average total cost curve ii: average variable cost curve iii: average fixed cost curve
both i and ii are correct
a production function shows that to increase the quantity produced, the firm
can increase its use of at least one input or adopt new technology
in a production function using only capital and labor, the amount of ___ is fixed in the short run
capital
a firm produces output using only labor and capital. MPl is the marginal product of labor and w is the cost of a unit of labor MPl/W measures the
change in output from a one dollar change in spending on labor
if a firms long-run average cost remains at $4 when output increases, the firm is experiencing ___
constant returns to scale
you are a manager for Callaway Golf Company. you know that you are producing your golf clubs at the lowest average total cost (ATC) and are producing at a point on your long-run average cost (LAC) curve. consequently, the firm is producing at a point where it has
constant returns to scale
Energizer Holdings initially produced only its namesake batteries. over the years, it acquired other divisions that produced personal care products such as razor and sunscreen. the executives at Energizer holdings decided that they would split the company into two independent firms, one producing batteries and the other the personal care products, because they thought the split would lower the two firms cost the executives reasoning is ___ because there ___
correct, are diseconomies of scope when producing such different products
energizer holding initially produced only its namesake batteries. over the years, it acquired other divisions that produced personal care products such as razors and sunscreen. the executives at energizer holdings decided that they would split the company into two independent firms, one producing batteries and the other the personal care products, because they thought the split would lower the two firms cost the executives reasoning is ____ because there ____
correct, are diseconomies of scope when producing such different products
the long-run marginal cost (LMC) curve does not necessarily intersect the long-run average cost (LAC) curve at the minimum of the long-run average cost
false
the marginal product of labor equals the change in output from changing labor by one unit while also changing all other units by one unit
false
the minimum point on each average total cost (ATC) curve touches the long-run average cost (LAC) curve
false
three inputs into the production function are labor, capital, and technology
false
to minimize cost, a manager must ensure that the most important input (the highest-cost input) has the largest marginal product
false
the long-run average cost (LAC) curve
first falls and eventually rises as the quantity is increased
as you hire more workers as a manager, you would expect the marginal product of labor to
first increase, then decrease, then become negative
as more capital is used, the marginal product of capital
first increases and then ultimately decreases
when a firm produces zero output, its total cost is equal to its ___
fixed cost
all of the following are true regarding fixed costs except which one
fixed costs are equal to the total cost plus variable costs
you manage a company that uses only labor and capital to produce output. you determine that if you spent an additional dollar on labor, you would produce 2 more units of output, and if you spent an additional dollar on capital, you would produce 3 more units of output. to minimize your costs, you should use ___ labor and ___ capital
less, more
firms typically experience increasing marginal returns to labor at ___ levels of employment due to ___
low, specialization
the difference between the short run and the long run is that
in the long run all inputs are variable
which average cost curve is NOT U-shaped
the average fixed cost (AFC) curve
at its current output level, Pretty Flowers Florist has average total costs equal to $10.40 and average variable costs equal to $6.20. what is Pretty Flowers Florists average fixed cost at their current output level
$4.20
why is a firms short-run average total cost curve typically U-shaped
- the U shape signifies the relationship between marginal cost and average cost - when marginal cost is above average total cost, the average increases
a technological change increases the amount of output that a firm can produce from a given quantity of inputs. it increases the marginal product of labor for each quantity of labor this will shift the marginal product of labor curve___ how does this technological change affect the marginal product of capital
- upward -the effect will be an increase in the marginal product of capital, the same as the effect on the marginal product of labor. the marginal product of capital curve will shift upwards
clerical workers form a union that successfully raises its members wages 1. the short-run average total cost curve of a firm that hires clerical workers will 2. the long-run average total cost curve of the firm will 3. the marginal cost curve of the firm will
1. shift upward 2. shift upward 3. shift upward
when a firm uses 100 workers and 20 units of capital, it produces 80 units of output, when it uses 101 workers and 21 units of capital, it produces 130 units of output, and when it uses 100 workers and 21 units of capital, it produces 105 units of output. the marginal product of capital for the 101st unit is
25 units of output
Big Truck Hauling Company uses 5 units of capital at 1,000 per unit and employs 10 employees at a cost of 400 each. what is the company's variable cost
4,000
Big Truck Hauling Company uses 5 units of capital at 1,000 per unit and employs 10 employees at a cost of 400 each. what is the company's fixed cost
5,000
Big Truck Hauling Company uses 5 units of capital at 1,000 per unit and employs 10 employees at a cost of 400 each. what is the company's total cost
9,000
when the marginal product of labor increases, the marginal cost ___ and when the marginal product of labor reaches its maximum the marginal cost is at its ___
decreases, minimum
if a firm increases its use of all its inputs by 7% and its production increases by 5%, then the firm is definitely producing at a point with
diseconomies of scale
if a firms long-run average cost is $4 and when output increases long-run average cost increases to $4.50, the firm is experiencing ___
diseconomies of scale
if your firm can decrease its average total cost (ATC) by decreasing its production, then it is definitely producing at a point with
diseconomies of scale
suppose that doubling all inputs increases output by 70% this firm has ___ of scale, and its long-run average total cost curve will be ___ sloping in this region
diseconomies, upward
if the price of avocados, an input to ready-made guacamole, decreases, this will cause the short-run average total cost curves to shift ___ and the long-run average cost curve to shift ___
downward, downward
as a manager, you know that your firm uses more of a variable input, the marginal product of the input decreases which of the following statements is true for your firm
each additional unit of output requires more of the input which increases the marginal cost curve
if a firms long-run average cost is $4 and when output increases long-run average cost decreases to $3, the firm is experiencing ___
economies of scale
over the range for which the long-run average cost (LAC) curve is downward sloping, the firm is definitely producing at points with
economies of scale
Taco Bell recently introduced breakfast at its restaurants. if the increase in the number of products Taco Bell sells decreases the average total cost and marginal cost of its products, Taco Bell has experienced
economies of scope
taco bell recently introduced breakfast at its restaurants. if the increase in the number of produces taco bell sells decreases the average total cost and marginal cost of its products, taco bell has experienced
economies of scope
for about a decade, Procter & Gamble (P&G) increased the number of different types of beauty products it sold. but then the executives started to divest many of these products by selling them to other companies. the executives initially thought P&G would have ___ and then they believed that P&G had ___
economies of scope, diseconomies of scope
as a firm produces more output, its marginal cost (MC) always decreases in value
false
as long as a firms output increases when its use of labor increases, the firm has increasing marginal returns to labor
false
changes in technology affect a firms production but not its cost curves
false
economies of scope mean that if a company increases the amount of its production, the firms average total cost and marginal cost both decrease
false
if a firm has decreasing marginal returns to labor it must be producing at a point where its long-run average cost (LAC) curve is upward sloping
false
if the cost of hiring a unit of labor is the same as the cost of hiring a unit of capital, then to minimize cost the firm must use the same quantities of labor and capital
false
if you are producing at a point on your long-run average cost (LAC) curve with economies of scale, then if you increase your production you expect your average costs will fall in the short run but rise in the long run
false
increasing a firms product raises its fixed cost, its variable cost, and its total cost
false
marginal cost (MC) equals the change in average total cost (deltaATC) divided by the change in output (deltaQ)
false
only the average variable cost (AVC) curve is U-shaped
false
you and a competitor are both producing at a point where your long-run average costs are the same. both firms have constant returns to scale. if you increase your firms production, your average total cost (ATC) is ___ your competitors ATC and your long-run average total cost (LAC) is ___ your competitors LAC
greater than, equal to
you are a CEO of a regional paint company. last month your company was producing on its long-run average cost curve. you produced 100,000 tons of paint, and your total cost was $1.60 million. this month you hire more workers and produce 120,000 tons of paint with a total cost of $1.80 million between these two quantities, the shape of your long-run average cost curve is ___ because ___
impossible to tell, you have changed only one input
if the cost of capital is $80 per hour, the wage paid to employees is $15 per hour, the marginal product of capital if 16 units per hour, and the marginal product of labor is 5 units per hour, to minimize its costs, the firm should ___
increase the amount of labor used and decrease the amount of capital used
diseconomies of scale are often associated with ___
increased complexity and bureaucracy
economies of scale are often associated with ___
increased specialization
increasing marginal returns to labor is the result of
increased specialization of labor
if a firm is experiencing increasing marginal returns to labor, the firms production function is ___ at a(n) ___
increasing, increasing
the wage rate is $20 and the price of raw materials is $8. the marginal product of labor is 15, and the marginal product of raw materials is 4 a firm operating under these conditions ___ minimizing its costs the firm should use ___ labor and ___ raw materials to lower its cost
is not more, less
learning by doing means that as a company produces more of a good
its marginal cost curve shifts downward
the competitive return is
one of the opportunity costs incurred by a business
an increase in the cost of a fixed input shifts the ___ upward i: average total cost curve ii: marginal cost curve
only i is correct
if a firm is producing at a point with increasing returns to scale, in the long run i: it can lower its average cost by increasing its production ii: it cannot lower its average cost iii: it can lower its average cost by decreasing its production
only i is correct
labor is a variable input, so its cost is included in the firms i: fixed cost ii: variable cost iii: total cost
only ii and iii are correct
if a firm increases its use of all inputs by 5% and its output increases by 3%, then the firm definitely experiences i: decreasing marginal returns to labor ii: decreasing returns to scale
only ii is correct
____ become(s) constantly smaller as output increases
only the average fixed cost (AFC)
Apple Inc's research and development for its iPhone eventually helped the firm develop its first iPad Due to Apple's production of iPads, apple's cost curves will ___ as a result of ___
shift down, economies of scope
an advance in technology that allows more output to be produced from the same amount of inputs
shifts the marginal product of labor curve upward
the long-run average cost curve
shows the lowest average total cost (ATC) of producing each quantity
if a company uses 10 different inputs, then to minimize the cost of producing a desired amount of output the managers must use amounts of inputs such that
the change in output from spending a dollar on any input is equal to the change in output from spending a dollar on any other input
marginal cost (MC) is equal to ____
the change in the total cost divided by the change in output deltaTC/deltaQ
if a firm has constant returns to scale, then
the firm must increase its use of all inputs to increase its production
if the long-run average cost (LAC) curve has a horizontal range, then
the long-run marginal cost (LMC) equals the long run average cost for this range of output
if the marginal product of labor (MPL) increases when more labor is employed then
the marginal cost (MC) decreases when output increases
over the range of labor with decreasing marginal returns to labor
the marginal product of labor falls as more labor is employed
two of your managers complain that: "we wish we had another factory to meet the demand for our product!" these managers mean that
they wish that enough time had passed so that the company reached the long run
