Question 1

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.

Accepted Answer

The answer of In the general textbook treatment, the firm's...

Question 2

The "law of diminishing marginal returns" applies to:

Accepted Answer

A) the short run, but not the long run. 
B) the long run, but not the short run. 
C) both the short run and the long run. 
D) neither the short run nor the long run.

Question 3

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?

Accepted Answer

The answer of Use the following table to answer questions...

Question 4

The average product of a variable input is calculated as:

Accepted Answer

A) total product divided by total output. 
B) the change in total product divided by the change in the variable input. 
C) total product divided by the change in the variable input. 
D) total product divided by the total quantity of the variable input.

Question 5

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.

Accepted Answer

The answer of Explain how the value of marginal cost...

Question 6

Which of the following statements is correct?

Accepted Answer

A) In the short run, if a firm chooses to produce no output (i.e., shut down)its total costs of production will equal its total fixed costs. 
B) If a firm decides to shut down, its short-run total costs will equal 0. 
C) As a firm increases output in the short run, the change in total costs is equal to the change in total variable costs. 
D) A firm minimizes its total costs of production when average variable cost is minimized.

Question 7

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

Accepted Answer

A) If MP is greater than AP, then AP is falling. 
B) The AP curve intersects the MP curve at minimum MP. 
C) The MP curve intersects the AP curve at maximum AP. 
D) If MP is less than AP, then AP is increasing.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) average costs functions are U-shaped as suggested by economic theory. 
B) for most firms, marginal costs are declining in the range in which the firms operate. 
C) for many firms, marginal and average variable costs are constant over wide ranges of output. 
D) there is no relationship between the marginal and average variable costs of production.

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

A firm's production function is the relationship between:

Accepted Answer

A) the inputs employed by the firm and the resulting costs of production. 
B) the factors of production and the resulting outputs of the production process. 
C) the demand for a firm's output and the quantity it is able to produce with available resources. 
D) the firm's production costs and the amount of revenue it receives from the sale of its output.

Question 13

The marginal product of a variable input is calculated as:

Accepted Answer

A) the change in total product divided by the change in output. 
B) total product divided by the change in the variable input. 
C) the change in total product divided by the change in the variable input. 
D) total product divided by the total quantity of the variable input.

Question 14

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

Accepted Answer

A) marginal product will be greater than average variable product, but the two will become more equal as output increases. 
B) marginal product will be less than average variable product, but the two will become more equal as output increases. 
C) marginal product will be greater than average variable product, and the difference between the two will become larger as output increases. 
D) marginal product and average variable product will be equal over the range of output in question.

Question 15

Which of the following statements regarding historical costs is correct?

Accepted Answer

A) Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation. 
B) Historical costs vary depending on the method of depreciation a firm uses. 
C) Historical costs are a good indicator of the current opportunity cost of a piece of capital. 
D) Using historical costs can cause true economic profit to be under or over stated.

Question 16

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

Accepted Answer

A) total product. 
B) average variable product. 
C) marginal product. 
D) total fixed product.

Question 17

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:

Accepted Answer

A) increasing. 
B) constant. 
C) decreasing. 
D) cannot be determined without additional information.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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:

Accepted Answer

A) an accounting profit of $10,000 per year. 
B) an accounting profit of $60,000 per year. 
C) an economic profit of $10,000 per year. 
D) an economic profit of $50,000 per year.

Question 20

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

Accepted Answer

A) $8. 
B) $10. 
C) $29. 
D) $39.

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.

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