Exam 5: Production and Cost Analysis in the Short Run

Which of the following statements is correct?

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

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?

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.

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

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

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

A firm's production function is the relationship between the factors of production and the resulting outputs of the production process.

The payment of wages by a firm is an example of:

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

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.

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

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

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.

Once a firm incurs diminishing marginal returns, total product will begin to decline as more of the variable input is employed.

All else constant, an increase in productivity has the effect of causing:

The term "fixed input" refers to:

Which of the following statements is false?

Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000.If the owner could work for another company for $30,000 a year, we would conclude that: