Exam 5: Production and Cost Analysis in the Short Run

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.

The "law of diminishing marginal returns" applies to:

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?

The average product of a variable input is calculated as:

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.

Which of the following statements is correct?

Which of the following is true of the typical relationship between marginal product (MP)and average product (AP)?

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

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

Much of the empirical evidence on the behavior of costs for real-world firms suggests that:

According to a study by Blinder et al., on average, fixed costs account for about 44 percent of firms' total costs of production, suggesting that fixed costs are more important to many firms' decision-making processes than standard theory would suggest.

A firm's production function is the relationship between:

The marginal product of a variable input is calculated as:

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

Which of the following statements regarding historical costs is correct?

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

For a particular production function, over the range of output where marginal product rises as units of the variable input are added to the fixed input, marginal cost will be:

For a typical short-run production function, so long as marginal product is increasing, average product will be increasing as well.

Fred is considering opening a ski shop in Colorado.Assume Fred will incur the following costs: building rent = $100,000/year, inventory = $250,000/year, energy = $50,000/year, and labor (one clerk)= $10,000/year.In addition, Fred's current income as a computer programmer is $40,000 per year.Assuming Fred would earn $460,000 in revenues, he could expect to earn:

Refer to Scenario 3.The average total cost of 5 units of output is: