micro eco week 7
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 $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each.Their average fixed cost per month per sandwich, rounded to the nearest penny, is
1.43
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 $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each. Its average total cost, rounded to the nearest penny, is _____.
10
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
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 $5,000 on food. There are no other production costs. Usually the shop sells 3,500 sandwiches per month for $10 each. The shop could hire another worker and increase the number of sandwiches it makes by 300. Assuming a constant food cost per sandwich of $1.43, their marginal cost per month per sandwich, of making 300 more sandwiches per month, rounded to the nearest penny, is
9.76
The relationship between the quantity of output and average total cost is described by which of the following? Multiple select question. Marginal cost Economies of scale Constant returns to scale Diseconomies of scale Marginal product
Economies of scale Constant returns to scale Diseconomies of scale
Total revenue minus explicit costs is
accounting profit.
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
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.
When a firm realizes diseconomies of scale by expanding,
the ATC curve increases as output increases.
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.
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.
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 ________ Costs
explicit
Firms have both explicit and implicit costs. Accounting profit is total revenue minus _________(explicit/implicit) costs.
explicit
________ costs include both fixed and variable costs.
explicit
___________ costs include both fixed and variable costs.
explicit
_____________ costs are costs that require a firm to spend money. __________costs do not require a firm to spend money or take on obligations.
explicit implicit
True or false: The long run is any period over one year.
false
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
Explicit costs include
fixed and variable costs.
__________Costs that don't change as output increases or decreases are called
fixed cost
Average fixed cost equals
fixed cost divided by quantity of output.
The average fixed cost curve trends downward because the
fixed costs remain the same as production increases.
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.
fixed total
Total costs = ________costs + _______-costs.
fixed variable
When economists think about a firm's costs, they are thinking about everything the firm
gives up in order to produce output.
When output is very low, each additional worker has a ________ (higher/lower) marginal product than the last one; but when more workers are added the marginal product starts to _________ (increase/decrease).
higher decrease
_____costs represent forgone opportunities.
implicit
From looking at a graph of the production function, you can see that the marginal product initially ________ (increases/decreases) when the first few workers are added; but then it begins to ______ (increases/decreases)
increase decrease
The average variable cost curve has its shape because, initially, the first few employees demonstrate ___________(increasing/decreasing) marginal product causing the average variable cost curve to slope ___________(upward/downward) but when the principle of diminishing marginal product kicks in, the curve slopes _______________(upward/downward).
increase downward upward
The marginal product of an employee is the
increase in the units of a product that can be produced by hiring an another employee.
Diseconomies of scale are returns that occur when an increase in the quantity of output
increases average total cost.
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
Economists think of the ___________ run as being the period of time in which a firm can vary all of its costs.
long
When a firm realizes economies of scale, it can _____.
lower its average cost by producing more output
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 increasing slope of the total cost curve reflects the principle of diminishing _______ product
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.
__________costs are what you give up in order to get something.
opportunity
When economists think about a firm's costs, they are thinking about
opportunity costs.
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
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
The production function shows the relationship between the
quantity of inputs and the quantity of outputs.
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
The cost of a lease (or any input) is fixed in the ________ run, but not fixed in the _______ run
short lung
Marginal product is represented by the ______ of the total production curve.
slope
Marginal product is represented by the __________ of the total production curve.
slope
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 a business.
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.
Because of the principle of diminishing marginal product,
the slope of the total cost curve increases.
average total cost = _________ cost/quantity of output (Enter one word in the blank.)
total
Average total cost equals
total cost divided by quantity.
The quantity sold multiplied by the price paid per unit is
total revenue
Average variable cost equals
variable cost divided by quantity of output.
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.
Because marginal product is represented by the slope of the total production curve,
when diminishing returns take effect, the total production curve levels out.
