Exam 5: Production and Cost Analysis in the Short Run

The "law of diminishing marginal returns" applies to:

Distinguish between implicit and explicit costs and give examples of each. In addition, explain how explicit and implicit costs affect the distinction between economic profit and accounting profit. What explains the distinction between the two measures of profit?

A firm's short-run cost functions depend primarily on the firm's production function and the prices of the inputs to production.

-Refer to Scenario 3. The average variable cost of producing three units of output is:

Assume that after the fifth worker, each additional worker a firm hires is less productive than the previous worker. Based on this information, we can conclude that beyond the fifth worker, the average product of labor will:

In the short run, a firm can minimize its total costs of production by operating at the minimum of its average total cost curve.

The amount of output a firm can produce with a given quantity of fixed and variable inputs is called:

At the point where a firm incurs diminishing marginal returns, total product will begin to decline.

Which of the following is the best example of "depreciation"?

One of the interesting findings of a survey of firm managers by Blinder et al. is that:

Marginal cost is defined as the change in cost when output changes by one unit. In the short run, marginal cost can also be measured by the change in cost when output changes by one unit.

Florence is considering going into business for herself and has developed the following estimates of monthly costs and revenues to aid her in her decision-making process. She has decided to house the business in a building that she already owns, although she could rent the building to someone else for $1,000 per month. Estimated payments for utilities electricity, natural gas, water, and telephone) are $475 per month. She will hire one employee at a total cost of $1,100 per month. Inventory is estimated to cost $2,800 per month. Finally, Florence earns $3,000 a month in her current job. a. How much monthly revenue would Florence have to take in to earn 0 economic profit? b. Assume that Florence has estimated her monthly revenue to be $9,000. In this case, Florence would earn an accounting profit loss) of , and an economic profit loss) of . c. Assume instead that Florence does not own a building, and that she will have to rent a building for $1,000 per month all other estimates remain the same). In this case assuming estimated monthly revenue is still $9,000), Florence would earn an accounting profit loss) of , and an economic profit loss) of .

The typical short-run production function is incapable of distinguishing among the different types of labor that might be hired by the firm.

The average product of a variable input is calculated as:

Marginal cost is defined as:

Use the following information on a hypothetical short-run production function to answer questions a-c. Units of Labor/Day 5 6 7 8 9 Units of Output/Day 120 140 155 165 168 The price of labor is $20 per day. Ten units of capital are used each day, regardless of output level. The price of capital is $50 per unit. a. Calculate the marginal and average variable product of each unit of labor input. b. Calculate total, average total, average variable, and marginal costs. c. Can you tell where diminishing marginal returns sets in?

In the mathematical formulation of the short-run production function:

A firm's production function is the relationship between:

Which of the following statements is correct?

If a firm experiences constant returns to the variable input in the short run,