Micro Econ Ch 13

question

Accounting profit is equal to total revenue minus
a. implicit costs.
b. variable costs.
c. the sum of implicit and explicit costs.
d. explicit costs.
e. marginal costs.

answer

explicit costs.

question

Economic profit is equal to total revenue minus
a. variable costs.
b. implicit costs.
c. explicit costs.
d. marginal costs.

answer

the sum of implicit and explicit costs.

question

Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for €100 each. It costs Nicole €20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested €100,000 in her factory and equipment: €50,000 from her savings and €50,000 borrowed at 10 per cent. (Assume that she could have loaned her money out at 10 per cent, too.) Nicole can work at a competing pottery factory for €40,000 per year. The accounting profit at Nicole's pottery factory is
a.€30,000.
b.€35,000.
c.€75,000.
d.€70,000.
e.€80,000.

answer

$75,000.

question

Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for €100 each. It costs Nicole €20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested €100,000 in her factory and equipment: €50,000 from her savings and €50,000 borrowed at 10 percent (assume that she could have loaned her money out at 10 percent, too). Nicole can work at a competing pottery factory for €40,000 per year. The economic profit at Nicole's pottery factory is
a.€80,000.
b.€30,000.
c.€75,000.
d.€70,000.
e.€35,000.

answer

$30,000.

question

If there are implicit costs of production,
a. accounting profit will exceed economic profit.
b. economic profit will always be zero.
c. economic profit will exceed accounting profit.
d. accounting profit will always be zero.
e. economic profit and accounting profit will be equal.

answer

accounting profit will exceed economic profit.

question

If a production function exhibits diminishing marginal product, its slope
a. is linear (a straight line).
b. becomes steeper as the quantity of the input increases.
c. could be any of these answers.
d. becomes flatter as the quantity of the input increases.

answer

becomes flatter as the quantity of the input increases.

question

If a production function exhibits diminishing marginal product, the slope of the corresponding total-cost curve
a. is linear (a straight line).
b. could be any of these answers.
c. becomes steeper as the quantity of output increases.
d. becomes flatter as the quantity of output increases.

answer

becomes steeper as the quantity of output increases.

question

Which of the following is a variable cost in the short run?
a. rent on the factory
b. wages paid to factory labour
c. interest payments on borrowed financial capital
d. payment on the lease for factory equipment
e. salaries paid to upper management.

answer

wages paid to factory labor.

question

When marginal costs are below average total costs,
a. average fixed costs are rising.
b. average total costs are falling.
c. average total costs are rising.
d. average total costs are minimized.

answer

average total costs are falling.

question

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will
a. be flat (horizontal).
b. slope upward.
c. slope downward.
d. be U-shaped.

answer

be U-shaped.

question

In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience
a. an increase in average total costs.
b. diseconomies of scale.
c. economies of scale.
d. constant returns to scale.

answer

economies of scale.

question

The efficient scale of production is the quantity of output that minimizes
a. average fixed cost.
b. average total cost.
c. average variable cost.
d. marginal cost.

answer

average total cost.

question

Which of the following statements is true?
a. All costs are fixed in the short run.
b. All costs are variable in the long run.
c. All costs are variable in the short run.
d. All costs are fixed in the long run.

answer

All costs are variable in the long run.

question

If marginal costs equal average total costs,

answer

average total costs are minimized.

question

Total Revenue

answer

-The amount a firm receives for the sale of its output
-Equals the quantity of output the firm produces times the price at which it sells its output (PxQ=TR)
EX: Caroline produces 10,000 cookies and sells them at $2 a cookie, her total revenue is $20,000.

question

Total Cost

answer

The market value of the inputs a firm uses in production

question

Profit

answer

Total revenue minus total cost (P=TR-TC)

question

Explicit Costs

answer

Input costs that require an outlay of money by the firm

question

Implicit Costs

answer

Input costs that do not require an outlay of money by the firm

question

Economic Profit

answer

Total revenue minus total cost, including both explicit and implicit costs (TR-TC(EC-IC))
- For a business to be profitable from an economist's standpoint, total revenue must cover all the opportunity costs, both explicit and implicit.
- A firm making positive economic profit will stay in business.
- When a firm is making economic losses (that is, when economic profits are negative), the business owners are failing to earn enough revenue to cover all the costs of production.

question

Accounting Profit

answer

Total revenue minus total explicit cost (TR-EC)
- Accounting profit is usually larger than economic profit.

question

Production Function

answer

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

question

Marginal revenue changes as what changes

answer

The amount of output sold

question

Diminishing Marginal Product

answer

The property whereby the marginal product of an input declines as the quantity of the input increases
- As the number of workers increases, the marginal product declines, and the production function becomes flatter.

question

Fixed Costs

answer

Costs that do not vary with the quantity of output produced
EX: fixed costs include any rent he pays because this cost is the same regardless of how much coffee he produces.

question

Variable Costs

answer

Costs that vary with the quantity of output produced
EX: variable costs include the cost of coffee beans, milk, sugar, and paper cups... the salaries of these workers are variable costs.

question

Average Total Cost

answer

Total cost divided by the quantity of output (TC/Q)

question

Average Fixed Cost

answer

Fixed cost divided by the quantity of output (FC/Q)

question

Average Variable Cost

answer

Variable cost divided by the quantity of output (VC/Q)

question

Marginal Cost

answer

The increase in total cost that arises from an extra unit of production

question

Efficient Scale

answer

The quantity of output that minimizes average total cost

question

Whenever marginal cost is less than average total cost,

answer

average total cost is falling.
EX: Average total cost is like your cumulative grade point average. Marginal cost is like the grade in the next course you will take. If your grade in your next course is less than your grade point average, your grade point average will fall.

question

Whenever marginal cost is greater than average total cost,

answer

average total cost is rising.
EX: Average total cost is like your cumulative grade point average. Marginal cost is like the grade in the next course you will take. If your grade in your next course is higher than your grade point average, your grade point average will rise.

question

The marginal-cost curve crosses the average-total-cost curve at its minimum. Why?

answer

This point of intersection is the minimum of average total cost.

question

The cost curves shown here share the three properties that are most important to remember:

answer

- Marginal cost eventually rises with the quantity of output.
- The average-total-cost curve is U-shaped.
- The marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.

question

Many decisions are

answer

fixed in the short run but variable in the long run

question

Economies of Scale

answer

The property whereby long-run average total cost falls as the quantity of output increases
EX: Often arise because higher production levels allow specialization among workers, which permits each worker to become better at a specific task. For instance, if Ford hires a large number of workers and produces a large number of cars, it can reduce costs with modern assembly-line production.

question

Diseconomies of Scale

answer

The property whereby long-run average total cost rises as the quantity of output increases
EX: Diseconomies of scale can arise because of coordination problems that are inherent in any large organization. The more cars Ford produces, the more stretched the management team becomes, and the less effective the managers become at keeping costs down.

question

Constant Returns to Scale

answer

The property whereby long-run average total cost stays the same as the quantity of output changes

question

Overview

answer

Explicit costs
Costs that require an outlay of money by the firm

Implicit costs
Costs that do not require an outlay of money by the firm

Fixed costs
Costs that do not vary with the quantity of output produced
FC
Variable costs
Costs that vary with the quantity of output produced
VC
Total cost
The market value of all the inputs that a firm uses in production
TC= FC+ VC
Average fixed cost
Fixed cost divided by the quantity of output
AFC= FC/Q
Average variable cost
Variable cost divided by the quantity of output
AVC= VC/Q
Average total cost
Total cost divided by the quantity of output
ATC= TC/Q
Marginal cost
The increase in total cost that arises from an extra unit of production
MC= Δ TC/Δ Q

1 of 40

question

Accounting profit is equal to total revenue minus
a. implicit costs.
b. variable costs.
c. the sum of implicit and explicit costs.
d. explicit costs.
e. marginal costs.

answer

explicit costs.

question

Economic profit is equal to total revenue minus
a. variable costs.
b. implicit costs.
c. explicit costs.
d. marginal costs.

answer

the sum of implicit and explicit costs.

question

answer

$75,000.

question

Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for €100 each. It costs Nicole €20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested €100,000 in her factory and equipment: €50,000 from her savings and €50,000 borrowed at 10 percent (assume that she could have loaned her money out at 10 percent, too). Nicole can work at a competing pottery factory for €40,000 per year. The economic profit at Nicole's pottery factory is
a.€80,000.
b.€30,000.
c.€75,000.
d.€70,000.
e.€35,000.

answer

$30,000.

question

answer

accounting profit will exceed economic profit.

question

answer

becomes flatter as the quantity of the input increases.

question

answer

becomes steeper as the quantity of output increases.

question

answer

wages paid to factory labor.

question

When marginal costs are below average total costs,
a. average fixed costs are rising.
b. average total costs are falling.
c. average total costs are rising.
d. average total costs are minimized.

answer

average total costs are falling.

question

answer

be U-shaped.

question

answer

economies of scale.

question

The efficient scale of production is the quantity of output that minimizes
a. average fixed cost.
b. average total cost.
c. average variable cost.
d. marginal cost.

answer

average total cost.

question

answer

All costs are variable in the long run.

question

If marginal costs equal average total costs,

answer

average total costs are minimized.

question

Total Revenue

answer

question

Total Cost

answer

The market value of the inputs a firm uses in production

question

Profit

answer

Total revenue minus total cost (P=TR-TC)

question

Explicit Costs

answer

Input costs that require an outlay of money by the firm

question

Implicit Costs

answer

Input costs that do not require an outlay of money by the firm

question

Economic Profit

answer

question

Accounting Profit

answer

Total revenue minus total explicit cost (TR-EC)
- Accounting profit is usually larger than economic profit.

question

Production Function

answer

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

question

Marginal revenue changes as what changes

answer

The amount of output sold

question

Diminishing Marginal Product

answer

question

Fixed Costs

answer

Costs that do not vary with the quantity of output produced
EX: fixed costs include any rent he pays because this cost is the same regardless of how much coffee he produces.

question

Variable Costs

answer

Costs that vary with the quantity of output produced
EX: variable costs include the cost of coffee beans, milk, sugar, and paper cups... the salaries of these workers are variable costs.

question

Average Total Cost

answer

Total cost divided by the quantity of output (TC/Q)

question

Average Fixed Cost

answer

Fixed cost divided by the quantity of output (FC/Q)

question

Average Variable Cost

answer

Variable cost divided by the quantity of output (VC/Q)

question

Marginal Cost

answer

The increase in total cost that arises from an extra unit of production

question

Efficient Scale

answer

The quantity of output that minimizes average total cost

question

Whenever marginal cost is less than average total cost,

answer

question

Whenever marginal cost is greater than average total cost,

answer

question

The marginal-cost curve crosses the average-total-cost curve at its minimum. Why?

answer

This point of intersection is the minimum of average total cost.

question

The cost curves shown here share the three properties that are most important to remember:

answer

question

Many decisions are

answer

fixed in the short run but variable in the long run

question

Economies of Scale

answer

question

Diseconomies of Scale

answer

question

Constant Returns to Scale

answer

The property whereby long-run average total cost stays the same as the quantity of output changes

question

Overview

answer

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Micro Econ Ch 13

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