question
Mitch opened a new shop that sells golf equipment and private lessons. If Mitch is a typical firm owner, he will make decisions that will result in...
answer
...the greatest level of profit - even if that means higher costs
question
Calculate Economic Profit
answer
Total Revenue (TR) - Opportunity Costs (explicit/implicit)
remember to calculate & include opportunity costs
remember to calculate & include opportunity costs
question
Economists include both Explicit and Implicit Costs when measuring a firm's cost. Accountants often (include or ignore) Implicit costs?
answer
Ignore Implicit Costs
question
Calculate Marginal Product
answer
MP = △Total Output /△Q
question
An example of an Explicit Cost is forgone interest payments when the money is invested in one's business. True or False?
answer
False
forgone interest payments are an Implicit opportunity cost
forgone interest payments are an Implicit opportunity cost
question
Production Function is the relationship between...
answer
Q(input) & Q(output)
question
What happens to Total-Cost-Curve when Marginal Productivity is decreasing?
answer
Total-Cost-Curve increases & gets steeper as the Q(output) increases
question
Explicit costs are considered by both Economists & Accountants when measuring a firm's profit? True or False?
answer
True
question
Lease payments for a building in which a firm operates is not an example of an opportunity cost that is also an implicit cost. True or False?
answer
True
question
An increasing Marginal-Cost-Curve reflects a diminishing Marginal Product.
A diminishing Marginal Cost Curve reflects an increasing Total-Cost-Curve.
A diminishing Marginal Cost Curve reflects an increasing Total-Cost-Curve.
answer
When the Marginal Product of Labor is diminishing - producing an additional unit of Q(output) requires additional labor & is thus increasingly costly
question
Forgone interest payments when the money is invested in one's business are an __________ of capital?
answer
Opportunity Cost
question
AFC always decline as Q(output) RISES because the FC are divided by higher and higher levels of output. True or False
answer
True
question
When ATC is decreasing, it is because MC are LESS than
ATC, so MC are pulling down ATC. True or False?
ATC, so MC are pulling down ATC. True or False?
answer
True
question
In the Long-Run ALL costs are...
In the Short-Run...
In the Short-Run...
answer
- Variable
- At least ONE cost is Fixed, but NOT ALL costs are Fixed
- At least ONE cost is Fixed, but NOT ALL costs are Fixed
question
Diseconomies of Scale exist when the long-run ATC RISES as the Q(output) increases. True or False?
answer
True
these diseconomies can arise because of coordination problems that are inherent in any large organization
these diseconomies can arise because of coordination problems that are inherent in any large organization
question
Constant Returns to Scale exist when the Long-run ATC stays the same as the Q(output) changes. True or False?
answer
True
question
Calculate TC when given ATC & Q(output)
answer
AVT = TC/Q ---> Q(AVT) = (TC/Q)Q
then...
AVT x Q = TC
then...
AVT x Q = TC
question
If a firm produces nothing, _____ costs are zero, and the firm will incur _____ costs?
answer
Variable & Fixed
question
A data analysis firm has an idle computer. If the firm hires another worker to put the idle computer to use...
answer
Variable-Costs will RISE
*hiring an additional worker to use currently idle equipment will INCREASE
Variable-Costs. Fixed costs will be unchanged*
*hiring an additional worker to use currently idle equipment will INCREASE
Variable-Costs. Fixed costs will be unchanged*
question
Calculate TC when given Q(output), AFC, & AVC
answer
ATC = AFC + AVC
then...
ATC x Q = TC
then...
ATC x Q = TC
question
What defines a "Short-Run" decision?
answer
All cost decisions are "Short-Run" decisions as long as the company has a Fixed Input (plant size)
question
Calculate VC when given Q(output) & AVC
answer
AVC = VC/Q
then...
AVC x Q = VC
then...
AVC x Q = VC
question
Calculate TC when given AVC, FC, & Q(output)
answer
VC = AVC x Q
then...
VC + FC = TC
then...
VC + FC = TC
question
Calculate VC & TC when given Q(output), FC, & AVC
answer
AVC = VC/Q so... VC = AVC x Q
then...
TC = VC + FC
then...
TC = VC + FC
question
In the Short-run, if a firm does not produce any output then it does not incur any costs. True or False?
answer
False
in the Short-Run, at least ONE factor of production is Fixed so the firm incurs Fixed Costs even if the firm does not produce any output
in the Short-Run, at least ONE factor of production is Fixed so the firm incurs Fixed Costs even if the firm does not produce any output
question
A firm experiences Diseconomies of Scale when...
answer
Long-run Average Total Cost RISES as Q(output) increases...
diseconomies of scale can arise because of coordination problems that are inherent in any large organization
diseconomies of scale can arise because of coordination problems that are inherent in any large organization
question
A firm experiences Economies of Scale when...
answer
Long-run Average Total Cost DECLINES as Q(output) increases...
economies of scale can arise because higher production levels allow specialization among workers, which permits each worker to become better at a specific task
economies of scale can arise because higher production levels allow specialization among workers, which permits each worker to become better at a specific task
question
A firm experiences Constant Returns to Scale when...
answer
Long-run Average Total Cost DOES NOT vary with the level of Q(output)...
question
Total VC includes...
answer
Sum of the costs that change with changes with the Q(output)
does not include rent or other FC
does not include rent or other FC
question
Marginal Cost definition...
answer
The amount that TC rises when a firm increases production by 1 unit of Q(output)
Example:
If Company A increases production from 2 to 3 cups, TC rises from $3.80 to $4.50. The MC of the third cup of coffee is $4.50 minus $3.80 = $0.70
Example:
If Company A increases production from 2 to 3 cups, TC rises from $3.80 to $4.50. The MC of the third cup of coffee is $4.50 minus $3.80 = $0.70
question
Efficient Scale definition...
answer
The quantity of Q(output) that results in the smallest ATC
question
AFC on a graph...
answer
AFC always declines as Q(output) rises because the FC is spread over a larger number of units
question
What does the corresponding Total-Cost-Curve look like based off of a Production-Function-Curve that is increasing but slowly flattening out?
answer
The production function exhibits diminishing Marginal Productivity and therefore the corresponding Total Cost Curve will increase at an increasing rate.
when the Marginal Product of Labor is diminishing producing an additional unit of output requires a lot of additional labor and is thus increasingly costly
when the Marginal Product of Labor is diminishing producing an additional unit of output requires a lot of additional labor and is thus increasingly costly
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