Exam 5: Production and Cost Analysis in the Short Run

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

Refer to Scenario 1.What is the total output when 2 hours of labor are employed?

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

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 ________.

Marginal cost is defined as:

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.

All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will:

An implicit cost is defined as:

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

Consider the production function for bottled water.All of the following would be considered variable inputs except:

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

Which of the following inputs is most likely to be "fixed" in the short run?

From the manager's perspective:

If, for a particular short-run production, we observe that marginal product is decreasing we can conclude that average product is decreasing as well.

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

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

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.

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

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.