ch 15 MicroEcon

86 cards·by amcloopy

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Economists normally assume that the goal of a firm is to

maximize profit

The amount of money that firm receives from the sale of its outputs is called total gross profits

False, total revenue

The amount of money a firm pays to buy inputs is called total cost

true

Profit is defined as net revenue minus depreciation

False, total revenue minus total cost

Net profit can be added to total profit to obtain total revenue

False, total cost can be added to total profit to obtain total revenue

Economists normally assume that the goal of a firm is to

make profit as large as possible even if reducing output, or incurring higher total cost

Total revenue equals total output multiplied by price per unit of output

true (quantity sold * price)

Those things that must be forgone to acquire a good are called substitutes

False, opportunity costs

Explicit costs require an outlay of money by the firm

true

An example of an explicit cost of production would be the cost of forgone labor earnings for an entrepreneur

False, the cost of flour for a baker

An example of an implicit cost of production would be the income an entrepreneur could have earned working for someone else

true

Accountants are primarily interested in the flow of money in and out of firms

true

John owns a shoe shine business, his accountant most likely includes wages John could earn washing windows

False, the cost of shoe polish

The cost of accounting services would be regarded as an implicit cost

False, the opportunity cost of financial capital that has been invested in the business

Economic profit is equal to total revenue minus the explicit cost of producing goods and services

False, total revenue minus opportunity cost

Accounting profit is equal to marginal revenue minus marginal cost

False, total revenue minus explicit cost

Economic profit is equal to

total revenue - explicit costs, total revenue - opportunity costs

Accounting profit is equal to

economic profit + implicit costs

Economic profit will never exceed accounting profit

true

To an economist, the obj that motivates an individual entrepreneur to start a business arises from an innate love for the type of business

False, innate love, to earn profit, to provide world with product. All of the above

When a firm is making a profit maximizing production decision the cost of something is what you give up to get it is most important decision

true

A production function is a relationship between inputs and quantity of output

true

The marginal product of labor is equal to the incremental cost associated with a one unit increase in labor

False, increase in output obtained from a one unit increase in labor

The marginal product of labor can be defined as change in profit/change in labor

False, change in output/change in labor

One would expect to observe diminishing marginal product of labor when crowded office space reduces the productivity of new workers

true

Adding 1 unit of labor leads to an ^ in output that is smaller than ^'s in output that resulted from adding previous units

diminishing marginal product

For a firm that uses labor to produce output, the production function depicts the relationship bw quantity of labor and quantity of output

true

The changing slope of the total cost curve reflects

decreasing marginal product

The nature of the underlying production function can be described as: "output increases at a decreasing rate with additional units of input"

true

Producing an additional cookie is always more costly than producing the previous cookie, this is consistent with shape of total cost curve

true

The firm can vary the number of workers it employs but not the size of its factory, this assumption is realistic for a firm in short run

true

Number of workers is variable while size of factory is fixed, this is true in the short run but not in the long run.

true

The marginal product of an input in the production process is the increase in total revenueobtained from an additional unit of the input

False, quantity of output obtained from an additional unit of that input

A total cost curve shows the relationship between the quantity of an input and the total cost of production

False, quantity of output

Average fixed costs do not vary with the amount of output a firm produces

true

An example of a fixed cost would be

raw materials supplied at a govt regulated price, rent paid on a factory

Fixed costs can be defined as costs that vary inversely with production

False, are incurred even if nothing is produced

Jan starts a lemonade business, the variable cost would include

lemonade mix

If a firm produces nothing, total costs will be zero

False, variable cost will be zero

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit maximizing firm is that in the short run

the size of the factory is fixed

The cost of producing the typical unit of output is the firms average total cost

true

Average total cost is equal to output/total cost

False, total cost/output

The amount by which total cost rises when the firm produces one additional unit of output is called average cost

False, marginal cost

The cost of producing an additional unit of output is the firms marginal cost

true

Variable cost divided by quantity produced is average total cost

False, average variable cost

Average total cost tells us the cost of a typical unit of output if total costs is divided evenly over all units produced

true

Marginal cost tells us the amount by which total cost rises when output is increased by one unit

true

Decreasing marginal product of labor with the addition of each worker regardless of current output level

avg total cost will be u shaped, avg fixed cost will be always falling, avg variable cost will be always rising, marginal cost will be risin

If marginal cost is rising, marginal product must be falling

true

Diminishing marginal product suggests that the marginal

product of an extra worker is less than the previous workers marginal product

Diminishing marginal product suggests that

marginal cost is upward sloping

The average fixed cost curve always declines with increased levels of output

true

Average total cost is very high when a small amount of output is produced

because average fixed cost is high

The efficient scale of the firm is the quantity of output that

minimizes average total cost

When marginal cost is less than the average total cost

average total cost is falling

When marginal cost exceeds average total cost, average total cost must be rising

true

Average total cost is increasing whenever marginal cost is greater than average total cost

true

Marginal cost is equal to average total cost when

average total cost is at its minimum

The marginal cost curve crosses the average total cost curve at the efficient scale

true

If marginal cost is below average total cost

is falling

At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, avg variable cost rises

true

Total cost can be divided into two types

fixed costs and variable costs

Some costs do not vary with the quantity of output produced, those costs are called

fixed costs

When marginal cost is less than average total cost, average total cost is rising

False, as the quantity of output increases marginal cost eventually increases

The firm's efficient scale is the quantity of output that minimizes average total cost

true

When a firm is able to put idle equipment to use by hiring another worker, variable costs will rise

true

When a firm is operating at an efficient scale

average total cost is minimized

Marginal cost must rise as the quantity of input increases

False, average fixed cost must fall

The marginal cost of the fifth unit of output equals the total cost of five units minus the total cost of four units

true

When marginal cost is rising, average variable cost

could be rising or falling

One of the most important properties of cost curves is that

the marginal cost curve eventually rises with the quantity of output

When a factory is operating in the short run

it cannot adjust the quantity of fixed inputs

In the long run

inputs that were fixed in the short run are variable in the long run

The long-run average total cost curve is always flatter than the short-run average total cost curve, but not necessarily horizontal

true

The length of the short-run is different for different types of firms

true

Economies of scale occur when

long-run average total costs fall as output increases

Diseconomies of scale occur when

long-run average total costs rise as output increases

Constant returns to scale occur when

long-run average total costs are constant as output increases

Specialization among workers occurs when

each worker is allowed to perfect one particular cost

If a firm wants to capitalize on economies of scale, it can assign limited tasks to their employees, so they can master those tasks

true, specialization

In reference to setting the production level, a firm's cost curves by themselves do not tell us what decisions the firm will make

true

Economies of scale arise when

workers are able to specialize in one particular task

How long does it take a firm to go from the short-run to the long-run

it depends on the nature of the firm

In the long-run, a firm that produces and sells computers gets to choose

how many workers to hire, size of the factory, and which short run average total cost curve to use

When, for a firm, long-run average total cost decreases as the quantity of output increases, we have a situation of

economies of scale

"Constant returns to scale" refers to a situation in which, for a firm

long-run average total cost does not change as the quantity of output changes