Micro Chapter 12 Review

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implicit costs are

costs that represent forgone opportunities.

True economic costs are ____ costs.

opportunity

what is the long run

period in which all inputs can be changed

If the marginal cost of increasing production by one unit is ____ than your current average total cost, then producing that extra unit will decrease your average total cost.

Less

Average total cost is rising when

MC > ATC

If a sandwich shop produces zero sandwiches, which of the following costs will it still incur?

The rented storefront

Average total cost = ____ cost/quantity of output

Total

The amount that a firm pays for all of the inputs that go into producing goods and services is the ____ cost

Total

Average variable cost = Total ____ cost/quantity of output.

Variable

____ costs depend on the quantity of output produced.

Variable

Suppose Jump High produces trampolines in a rented space using purchased frames and materials. They also hire labor and buy advertising services from a marketing company for a flat annual fee. Their fixed costs include _____.

advertising and rent

Suppose Event Photo Services takes photographs at private events with cameras they purchased. They process the photos in a rented space and hire hourly labor to arrange shoots and produce the finished photo packages. They buy advertising services from a marketing company for a flat annual fee. Their fixed costs include _____.

advertising, rent, and cameras

When a firm faces constant returns to scale, _____.

an increase in the quantity of output does not change the average total cost

formula for marginal cost

change in total cost / change in quantity

The marginal cost is the

change in total cost ÷ the change in the quantity of output.

If a small firm finds that operating on a larger scale causes its average cost to stay the same, the firm is facing

constant returns to scale

The principle of diminishing marginal product states that the marginal product of an input

decreases as the quantity of the input increases.

Variable costs

depend on the quantity of output produced.

If a small firm finds that operating on a larger scale causes its average cost to increase, the firm is facing

diseconomies of scale

Suppose Drink Well produces flavored water in a permanently rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a flat annual fee. Their variable costs include:

labor, water, and bottles

Economists think of the _____ run as the period of time in which a firm can vary all of its costs

long

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each.Their total cost is

$35,000.

Suppose you are able to produce 50 basketballs. Hiring another employee enables you to produce 65 basketballs. The marginal product of the added worker is ____ basketballs.

15

Explicit costs are:

1: costs that require a firm to spend money 2: costs that include just about everything we typically think of as a cost

Chris spends $240 on a lawn mower for her landscaping business. What is her average fixed cost if she mows the following numbers of lawns?

20 lawns - 12 30 lawns - 8 40 lawns - 6 60 lawns - 4 80 lawns - 3 120 lawns - 2

Suppose with 5 workers you can produce 100 picture frames. With 6 workers you can produce 125 picture frames. The marginal product of the added worker is ____ picture frames.

25

Molly spends $30 on a large cooler for her lemonade stand, her only fixed cost. What is her average fixed cost if she sells the following numbers of cups of lemonade?

5 cups=30/5=$6 10 cups=30/10=$3 15 cups=30/15=$2 30cups=30/30=$1 60 cups=30/60=$0.5 120 cups=30/120=$0.25

12 employees produce 600 skateboards per week. Average product equals ____ skateboards per week.

50

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of its 10 workers $2,500 a month and spends an average of $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each. The average variable cost per month per sandwich, rounded to the nearest penny, is _____.

8.57 Reason: (10 × 2,500 + 5,000 / 3,500) = 8.57

Total revenue minus explicit costs is

Accounting profit

Gut Bombs sandwich shop pays 10 workers $2,500 a month and spends $5000 on food. Usually the shop sells 3,500 sandwiches per month for $10 each. Their average product of the 10 workers is

Average product = 3500/10 = 350 sandwiches

The minimum of the average total cost curve occurs at a higher output level than the minimum of the average variable costs curve because the average ____ cost is lower than the average ____ cost and this pulls the average total cost down.

Blank 1: fixed Blank 2: total or variable

TOTAL COSTS = ______________ costs + _______________ costs

Blank 1: fixed Blank 2: variable

By increasing or decreasing their scale, firms can move along the _____-run ATC curve from one ____-run ATC curve to another.

Blank 1: long Blank 2: short

The ____-run cost curve can be thought of as consisting of points on various ____-run ATCs faced by firms of various sizes, operating at different scales.

Blank 1: long Blank 2: short

The relationship between the quantity of output and average total cost is described by which of the following?

Diseconomies of scale Economies of scale Constant returns to scale

True or false: The long run is any period over one year.

False Reason: The long run is a period during which all inputs and their prices are variable.

The slope of the total cost curve decreases because of the principle of diminishing marginal product.

False Reason: The slope of the total cost curve increases because of the principle of diminishing marginal product.

Average fixed cost = ____ cost/quantity of output.

Fixed

The average ____ cost curve trends downward because as production increases, the cost per unit of production decreases.

Fixed

____ costs are those that don't depend on the quantity of output produced.

Fixed

Costs that don't change as output increases or decreases are called

Fixed cost

When output is very low, each additional worker has a ____ marginal product than the last one; but when more workers are added the marginal product starts to ____

Higher decrease

____ costs represent forgone opportunities.

Implicit

The increase in the number of units of a product that can be produced by hiring an additional employee is called the ____ product of that employee.

Marginal

The principle of diminishing ____ product states that the marginal product of an input decreases as the quantity of the input increases.

Marginal

____ product is represented by the slope of the total production curve.

Marginal

The change in total cost divided by the change in the quantity of output is the

Marginal cost

The marginal product of any input into the production process is the increase in

Output

The relationship between the quantity of inputs and the quantity of outputs is the ____ function.

Production

When people refer to the bottom line, they are referring to the company's ____ which is shown on the bottom line in a company's income statement.

Profit

Suppose Drink Well produces flavored water in a rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a fee based on sales. Their fixed costs include

Rent

Marginal product is represented by the ____ of the total production curve.

Slope

If a firm decreases production, its:

fixed costs stay the same.

Implicit costs are costs that

do not require a firm to spend money or take on obligations.

Fixed costs are those that

don't depend on the quantity of output produced.

Economists think of the long run as being the period of time

during which a firm can vary all of its inputs and their costs.

In general, _______ profit is smaller than ________ profit

economic, accounting

If a small firm finds that operating on a larger scale enables it to lower its average cost, then the firm is facing

economies of scale.

Costs that require a firm to spend money are

explicit

Firms have both explicit and implicit costs. Accounting profit is total revenue minus ____ costs.

explicit

Rent on a building, employee salaries, materials, and machines are examples of ____ costs.

explicit

what are rent on a building, employee salaries, materials, and machines an example of?

explicit costs

the average ______ cost curve trends downward because as production increases, the cost per unit of production increases

fixed

Explicit costs include

fixed and variable costs.

Average fixed cost equals

fixed cost divided by quantity

what is the formula for total cost

fixed cost+variable cost

What is the average fixed cost formula

fixed cost/quantity of output

Total costs =

fixed costs + variable costs.

The average fixed cost curve trends downward because the

fixed costs remain the same as production increases.

What is the implicit cost of using your saved money as your start-up capital?

give up interest you could have earned on the money in a savings account

When economists think about a firm's costs, they are thinking about everything the firm

gives up in order to produce output.

Costs that do not a require a firm to spend money or take on obligations are

implicit costs

Because of the principle of diminishing marginal product, the slope of the total cost curve _______

increases

If the marginal cost of increasing production by one unit is more than your current average total cost, then average total cost of producing that extra unit_______

increases

Diseconomies of scale are returns that occur when an increase in the quantity of output

increases average total cost.

From looking at a graph of the production function, you can see that the marginal product initially _______ when the first few workers are added; but then it begins to _______

increases, decreases

Marginal cost initially decreases as marginal product ______ and then increases as marginal product ____

increases, decreases

How can firms move along the long-run ATC curve from one short-run ATC curve to another?

increasing or decreasing their scale

The average variable cost curve has its shape because, initially, the first few employees demonstrate ______ marginal product causing the average variable cost curve to slope _______ but when the principle of diminishing marginal product kicks in, the curve slopes _______

increasing, downward, upward

Because initially the first few employees have an increasing marginal product but eventually the principle of diminishing marginal product kicks in, the average variable cost curve

is U-shaped.

Suppose Event Photo Services takes photographs at private events. They process the photos in a permanently rented space and hire hourly labor to arrange shoots and produce the finished photo packages. They buy advertising services from a marketing company for a fee based on sales.Their variable costs include

labor and advertising.

Suppose Drink Well produces flavored water in a permanently rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a flat annual fee. Their variable costs include _____.

labor and bottles

Suppose Jump High produces trampolines in a rented space using purchased frames and materials. They also hire labor at a per unit rate and buy advertising services from a marketing company for a flat annual fee. Their variable costs include _____.

labor and materials

When a firm realizes economies of scale, it can

lower its average cost by producing more output

Suppose Drink Well produces flavored water in a rented space using their private well, purchased bottles, and hired hourly labor. They buy advertising services from a marketing company for a fee based on sales. The owners used $100,000 of their savings to start the company.Explicit costs include

purchased bottles, hired hourly labor, and advertising services.

The production function shows the relationship between the

quantity of inputs and the quantity of outputs.

what do economies of scale, diseconomies of scale, and constant returns describe the relationship between?

quantity of output and average total cost

Economies of scale, diseconomies of scale, and constant returns to scale describe the relationship between the

quantity of output and average total cost.

The amount that a firm receives from the sale of goods and services is its total _____

revenue

Total revenue is the quantity

sold multiplied by the price paid per unit.

In business, people frequently say, "It's all about the bottom line." What they mean by this is:

that making a profit is the central goal of business

When a firm could achieve economies of scale by expanding

the ATC curve decreases as output increases.

What is total revenue

the amount a firm receives for the sale of its output

what is total cost

the amount that a firm pays for all of the inputs that go into producing goods and services

A firm's first few employees tend to have increasing marginal product. At some point, the principle of diminishing marginal product kicks in. As a result,

the average total cost curve is U-shaped.

A firm's first few employees tend to have increasing marginal product. At some point, the principle of diminishing marginal product kicks in. As a result:

the average total cost is U shaped

What is profit

the difference between total revenue and total cost

what does variable cost depend on

the quantity of output produced

What does the production function show

the relationship between the quantity of inputs used to produce a good and the quantity of output of that good

Average total cost equals

total cost divided by quantity

what is the average total cost formula

total cost/quantity of output

What is accounting profit

total revenue - explicit costs

formula for average variable cost

total variable cost / quantity

what is the average product of labor formula

units of output/workers

Average variable cost equals

variable cost divided by quantity of output.

If a firm stops production, then its:

variable costs drop to zero fixed costs stay the same. total costs decrease Ans: All of these are correct.

If a firm produces nothing, its _____ equal zero.

variable costs66

A flat portion of an average total cost curve represents the

various different levels of output at which the firm achieves constant returns to scale.

When is a firm operating at an efficient scale?

when it cannot lower its average cost by either increasing or decreasing its scale


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