chap eleven- micro midterm 3

question

long run

answer

a period in which a firm can vary all inputs, such as adopting new technologies, and changing the sizee of its physical plant

question

short run

answer

a period in which at least one fof a firm's inputs is fixed

question

variable cost (VC)

answer

-costs that change as output changes

-e.g. the cost of cheese and wages paid to workers

question

fixed cost (FC)

answer

-costs that remain constant as output changes

-e.g. the cost of leasing ovens and restaurant space

question

total cost (TC)

answer

-the cost of all inputs used in a production
-equal to the sum of fixed and variable costs

TC=FC+VC

question

in the long run:

a. there are no variable costs
b. there are no fixed costs
c. there are no total costs
d. all costs are fixed

answer

b. there are no fixed costs

question

FC=

a. TC-VC
b. TC+VC
c. VC-TC
d. VC-FC

answer

a. TC-VC

question

explicit costs

answer

-costs that involve explicitly spending money
-sometimes called "accounting costs"

-e.g. issuing a paycheck to an employee

question

economic cost

answer

costs that include both implicit and explicit costs

question

implicit costs

answer

-opportunity cost that do not involve explicitly spending money

-e.g. the salary you could have earned doing something else

question

You own the building that your restaurant is in. You could have rented the building out to someone else for $5,000 per month. The opportunity cost of using the building for your restaurant is

a. $5,000 per month
b. zero, because you own the building

answer

a. $5,000 per month

question

prodution function

answer

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

question

Marginal Product of Labor (MPL)

answer

-the additional output resulting from hiring one more unit of labor
-in our example, the additional output from hiring one more worker

𝑀𝑃𝐿 = ∆𝑄/∆𝐿

question

Law of Diminishing Returns

answer

-in the short run, the marginal product of a variable input will eventually decline

-e.g. too many pizza chefs crowding around a fixed number of ovens

question

Average Product of Labor (APL)

answer

-output per unit of labor

-APL=Q/L

question

If, with a given amount of labor, marginal product equals 80 and an average product equals 65, then

a. marginal product must be rising
b. marginal product must be falling
c. average product must be rising
d. average product must be falling

answer

c. average product must be rising

question

Marginal Cost

answer

-the increase in total cost from producing one more unit of output

-MC=△TC/△Q

question

Average Total Cost

answer

ATC=TC/Q

question

why does marginal cost eventually fall?

answer

specialization

question

why does marginal eventually rise?

answer

law of diminishing returns

question

if, at a given output, marginal cost equals $0.50 and an average total cost also equals $0.50 then

a. average total cost is at its maximum
b. average total cost is at its minimum
c. marginal cost is at its maximum
d. marginal cost is at its minimum

answer

b. average total cost is at its minimum

question

AFV=

a. ATC+AVC
b. AVC-ATC
c. ATC- AVC
d. AFC-AVC

answer

c. ATC- AVC

question

Long Run Average Cost Curve

answer

- a curve showing the lowest average cost at which the firm is able to produce a given quantity of output in the long run

-the "envelope" of all possible short- run average total cost curves

question

economies of scale

answer

-when long run average cost falls as output increases

-ex) ability to adopt large-scale technologies

question

diseconomies of scale

answer

-when long run average cost rises as output increases

-difficulty managing a large operation

question

constant returns to scale

answer

when long run average cost remains constant as output increases

question

minimum efficient scale

answer

-the output at which all economies of scale are exhausted
-when LRAC is at a minimum

question

minimum efficient scale: in perfectly competitive market

answer

firms tend to produce at their minimum efficient scale

question

diseconomies of scale is

a. the same as the law of diminishing returns
b. a short-run concept
c. a long-run concept
d. when LRAC is at its minimum

answer

c. a long run concept

1 of 29

question

long run

answer

a period in which a firm can vary all inputs, such as adopting new technologies, and changing the sizee of its physical plant

question

short run

answer

a period in which at least one fof a firm's inputs is fixed

question

variable cost (VC)

answer

-costs that change as output changes

-e.g. the cost of cheese and wages paid to workers

question

fixed cost (FC)

answer

-costs that remain constant as output changes

-e.g. the cost of leasing ovens and restaurant space

question

total cost (TC)

answer

-the cost of all inputs used in a production
-equal to the sum of fixed and variable costs

TC=FC+VC

question

in the long run:

a. there are no variable costs
b. there are no fixed costs
c. there are no total costs
d. all costs are fixed

answer

b. there are no fixed costs

question

FC=

a. TC-VC
b. TC+VC
c. VC-TC
d. VC-FC

answer

a. TC-VC

question

explicit costs

answer

-costs that involve explicitly spending money
-sometimes called "accounting costs"

-e.g. issuing a paycheck to an employee

question

economic cost

answer

costs that include both implicit and explicit costs

question

implicit costs

answer

-opportunity cost that do not involve explicitly spending money

-e.g. the salary you could have earned doing something else

question

answer

a. $5,000 per month

question

prodution function

answer

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

question

Marginal Product of Labor (MPL)

answer

-the additional output resulting from hiring one more unit of labor
-in our example, the additional output from hiring one more worker

𝑀𝑃𝐿 = ∆𝑄/∆𝐿

question

Law of Diminishing Returns

answer

-in the short run, the marginal product of a variable input will eventually decline

-e.g. too many pizza chefs crowding around a fixed number of ovens

question

Average Product of Labor (APL)

answer

-output per unit of labor

-APL=Q/L

question

answer

c. average product must be rising

question

Marginal Cost

answer

-the increase in total cost from producing one more unit of output

-MC=△TC/△Q

question

Average Total Cost

answer

ATC=TC/Q

question

why does marginal cost eventually fall?

answer

specialization

question

why does marginal eventually rise?

answer

law of diminishing returns

question

answer

b. average total cost is at its minimum

question

AFV=

a. ATC+AVC
b. AVC-ATC
c. ATC- AVC
d. AFC-AVC

answer

c. ATC- AVC

question

Long Run Average Cost Curve

answer

- a curve showing the lowest average cost at which the firm is able to produce a given quantity of output in the long run

-the "envelope" of all possible short- run average total cost curves

question

economies of scale

answer

-when long run average cost falls as output increases

-ex) ability to adopt large-scale technologies

question

diseconomies of scale

answer

-when long run average cost rises as output increases

-difficulty managing a large operation

question

constant returns to scale

answer

when long run average cost remains constant as output increases

question

minimum efficient scale

answer

-the output at which all economies of scale are exhausted
-when LRAC is at a minimum

question

minimum efficient scale: in perfectly competitive market

answer

firms tend to produce at their minimum efficient scale

question

diseconomies of scale is

a. the same as the law of diminishing returns
b. a short-run concept
c. a long-run concept
d. when LRAC is at its minimum

answer

c. a long run concept

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chap eleven- micro midterm 3

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