Exam 5: Production and Cost Analysis in the Short Run

Assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory.Economists would classify this as:

Which of the following statements concerning the relationships among the firm's total cost functions is false?

Assume a factory that currently employs 25 workers is considering adding another 5 workers to its payroll.Economists would classify this as:

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.

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.

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:

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:

Diminishing marginal returns occur when:

When demand for a firm's product decreases, the firm can take a number of steps to adjust costs and quantities supplied to the market.Some are listed below.Which actions are short run and which are long run? Explain your reasoning. a.Layoff 25 percent of the firm's existing employees. b.Declare bankruptcy and sell all of the firm's plant and equipment. c.Require management personnel to take a significant cut in pay. d.Furlough employees for 3 days each month. e.Move to a smaller production facility.

Economic theory provides insights into the range of possibilities for cost relationships.Studies such as those by Blinder et al.provide insights into where, within that range, many firms operate.Thus, there is no real conflict between theory and reality, as some people might try to claim.

Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.

Because it is a machine, a personal computer should be treated as a fixed input in the typical firm's short-run production function.

According to the text, much of the increase in productivity that has occurred more recently in the fast food industry was the result of improvements in capital and technology.

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

In the context of a production function, the remote order takers in the fast food industry would be classified as:

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

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:

For a particular farmer and a single growing season, the amount of seed that is planted would be considered a variable input.

Refer to Scenario 1.The production function illustrated in the table:

Refer to Scenario 1.What is the average product of the first three hours of labor?