Chapter 11 Econ HW

the production function is the relationship betweeb
the inputs employed by a firm and the maximum output it can produce with those inputs

what is the difference between the short run and the long run
in the short run, at least one of the firm’s inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology

is the amount of time that separates the short run from the long run the same for every firm
no

an implicit cost is
a nonmonetary opportunity cost

how are implicit costs different from explicit costs
an explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost

the payment she makes on her fire insurance policy is a ________ cost
fixed

the payment she makes to buy pizza dough is a __________ cost
variable

the wages she pays her workers is a _________ cost
variable

the lease payment she makes to her landlord who owns the building where her store is located is a ________ cost
fixed

the $300 per month payment she makes to her local newspaper for running her weekly advertisements is a ________ cost
fixed

the law of diminishing returns states that
adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline

does the law of diminishing returns apply in the long run?
no

as the level of output increases, the difference between the value of average total cost and average variable cost
decrease because average fixed cost decreases as output increases

minimum efficient scale is
the level of output at which the long-run average cost of production no longer decreases with output

a firm that does not reach its minimum efficient scale
will lose money if it remains in business

suppose Henry Ford had continued to experience increasing returns to scale, no matter how large an automobile factory he built. discuss what the implications of this would have been for the automobile industry
a- ford could have profitably sold his cars at a lower price than competitors

b- ford would have been able to produce his cars at lower long-run average cost than competitors

she reasons “I would like to have a restaurant in the suburbs, but I pay no rent for my restaurant now, and I don’t want to see my costs rise by $3000 per month.” what do you think of jills reasoning
Jill is incorrectly ignoring the opportunity cost of using the building she owns

the production function is the relationship between
the inputs employed by a firm and the maximum output it can produce with those inputs

“the marginal product of labor is increasing for the first 3 workers hired and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. then hill must have had to settle for increasingly poor workers.” do you agree with the students analysis? explain
no, marginal product initially increases due to division of labor and then decreases due to the law of diminishing returns

if the marginal product of labor is rising, is the marginal cost of production rising or falling? if the additional output from each new worker is rising,
the marginal cost of that output is falling because the only additional cost to producing more output is the additional wages paid to hire more workers

the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum is because
when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the average, it pulls the average up

consider the production of hotdogs. given the average total cost of producing hotdogs illustrated in the graph to the right, which of the following is true of the marginal cost of producing hotdogs
a- the marginal cost of producing up to 400 (minimum) hotdogs is less than the average total cost, but the marginal cost of producing more than 400 hotdogs is greater than the average total cost

b- the marginal cost of production is exactly equal to the average total cost at 400 hotdogs

the marginal cost is
$33 (see where x quantity of output gives you on MC curve)

the total cost is
$2610 (quantity of output times ATC)

the variable cost is
$2025 (quantity of output times AVC)

the fixed cost is
$585 (total cost minus variable cost)

identify the ATC, AVC, AFC, and MC
top to bottom at ending point:
MC
ATC
AVC
AFC

is the amount of time that separates short run from the long run the same for every firm?
no

any cost that remains unchanged as output changes represents a firms
fixed cost

any cost that changes as output changes represents a firms
variable cost

which of the following is likely to be a fixed cost for a farmer
insurance premiums on properyi

which of the following is likely to be a variable cost for a business firm
cost of shipping products

a firms production function is best described as
illustrating the relationship between inputs and the maximum amount of output that the firm can produce with these inputs

a short-run production function holds constant
the amount of capital

suppose Sheri owns a restaurant that serves pizza using three inputs: workers, restaurant space (and layout), and ovens. if workers are variable, restaurant space is variable, and ovens are variable, then Sheri is producing pizza in the _____________
long-run

which costs are affected by the level of output produced
variable costs

which of the following are implicit costs
the forgone salary and interest

which of the following are sometimes called accounting costs
explicit costs

which of the graphs above represents a typical average total cost curve
B (does not start at origin, concave up – cup shaped)

the law of diminishing returns applies
in the short run

when do diminishing returns in the production of pizzas start?
when the third worker is hired (when the marginal product of labor starts to decrease)

the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum because
when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the average, it pulls the average up

is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? briefly explain
yes. if marginal cost is less than average total cost, then average total cost will be decreasing

suppose a firms average total cost curve is decreasing with output. what can be said of its marginal cost curve? the firms marginal cost curve must be
below the average total cost curve

for a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. what is this output range
the output range greater than about 525 pizzas per day (check intersection of curves, then all x values after that point)

when the marginal cost is less than average total cost, average total cost must be
decreasing

the marginal cost curve intersects both the average variable cost and the average total cost curves at their ____________ points
minimum

what cost measure is equal to AFC+ AVC
average total cost

all of the following cost measures reach their minimum points when they are equal to the value of the marginal cost, except one. which cost measure is the exception
average fixed cost

as output increases, the vertical distance between average total cost and average variable cost curves gets ____________ and equals _____________
smaller ; average fixed cost

diseconomies of scale is
when a firms long-run average costs increase with output

what is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory
firms have difficulty coordinating production

in 2012, then Barnes & Noble CEO William Lynch predicted that although the firm was suffering losses in selling its nook tablet, “the Nook business will scale in fiscal 2013, reducing losses from last year.” when lunch said “the book business will scale.” he means the nook business will
increase in size gaining economies of scale advantages

as production levels increase, the Nook would become more profitable because
average cost per unit will fall

which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long run, when no inputs are fixed
the long-run average cost curve

economies of scale happen when the firms long-run average total cost ___________ as output increases
decreases

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