Exam 5: Production and Cost Analysis in the Short Run

The full opportunity costs of production are calculated as the sum of both explicit and implicit costs.

Diminishing marginal returns occur when:

The text lists all of the following as outcomes of McDonald's experimental adoption of remote order taking except:

An implicit cost is defined as:

Production functions A and B result in the same average total costs of production. However, production function A is twice as capital intensive as production function B. In this case, all else constant:

Much of the empirical evidence on the behavior of costs for real-world firms suggests that:

The amount of output produced with an additional unit of variable input is referred to as:

Assume a firm is currently producing 100 units of output, total fixed costs are $10,000, and average variable costs are $8. Based on this information we can conclude, with certainty, that the firm's:

All else constant, an improvement in technology would cause a firm's marginal, average variable, and average total cost functions to increase graphically, shift up).

The term "variable input" is used to refer to inputs that vary in terms of quality and, therefore, productivity.

When a firm is considering whether to buy a new piece of equipment with retained earnings, the amount of interest that could be earned on that money is an explicit cost and should be treated as such.

For a typical short-run production function, so long as marginal product is increasing, average product will be increasing as well.

The law of diminishing returns is a result of the fact that more and more units of a variable input are being added to a fixed input. Because of the limitations imposed by the fixed input, at some point the productivity of additional units of the variable input must decline.

-Refer to Scenario 3. Diminishing marginal returns are incurred when output is increased from:

Which of the following is true of the typical relationship between marginal product MP) and average product AP)?

-Refer to Scenario 2. The average fixed cost of 2 units of output is:

Assume there is an improvement in technology that increases the marginal product of each unit of labor. This would have the effect of:

Which of the following is not a determinant of a firm's cost functions?

A firm's decision to expand the size of its production facility would be considered a short-run decision so long as the expansion can be completed in less than a year.

Data on productivity gains in the 1990s in the United States strongly suggest that a significant share of those gains was attributable to: