Exam 5: Production and Cost Analysis in the Short Run

Assume that at the current level of output a firm's marginal cost and average variable cost of production are both decreasing.Based on this,we can conclude that the marginal product and average product of the firm's variable input(s)are both increasing.

Which of the following is an example of an "implicit cost"?

The "law of diminishing marginal returns" applies to:

By definition,in the typical firm's short-run production function all inputs are fixed in amount.

-Refer to Scenario 2.The marginal cost of the sixth unit 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:

Economists recognize what is sometimes referred to as "psychic income" such as the value some people attach to being their own boss.As such,failure to factor in psychic income when calculating economic profit could result in an understatement of the actual economic profit received from a particular enterprise.

Explain how the value of marginal cost affects the values of average variable cost and average total cost and what this means for the relationship between the marginal cost curve and the average variable and total cost curves.

The marginal product of a variable input is calculated by dividing total product by the change in the variable input.

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

Complete the table below,which represents the production costs for a typical firm.(Round numbers to the nearest tenth.) At what level of output do diminishing returns set in? How do you know?

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

In the general textbook treatment,the firm's short run average variable and average total cost curves are U-shaped,while the average fixed cost curve is downward sloping over the entire range of output.Explain why.

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.

The main difference between the short run and the long run is that:

All else constant,if the use of historic costs understates the opportunity costs associated with using a particular piece of capital,economic profit will be overstated.

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?

Use the following table to answer questions a-c. a.What is the average fixed cost of producing 4 units of output? b.What is the marginal cost of producing the third unit of output? c.At what level of output does the firm encounter diminishing marginal returns? How do you know?

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

All else constant,if the use of historic costs understates the opportunity costs associated with using a particular piece of capital,accounting profit will be understated.