ECON SC EXAM: CH. 6, 7, 8 - Assignment Essays

question

production function

answer

f(K, L) = q

K = capital
L = labor
q = output

question

capital and labor are

answer

economic resources

question

economic resources are also called

answer

factors of production / inputs

question

capital

answer

tools, machinery, plants and equipment used in the production process

question

microeconomic short run

answer

period of time so brief that at least one factor of production cannot be varied

question

microeconomic long run

answer

period of time long enough that all inputs can be varied

question

the amount of time that differentiates the short run from the long run varies by:

answer

industry

question

in the short run, if Boeing wants to produce more airplanes it could --

answer

hire additional workers
purchase additional capital

question

marginal product of labor

answer

additional output from an extra unit of labor

question

diminishing marginal returns

answer

when a product is declining

question

law of diminishing marginal returns

answer

as more of an input like labor is added, eventually the marginal product will begin to diminish

question

diminishing marginal returns implies --

answer

output is increasing at a decreasing rate

question

average product of labor

answer

output per worker (Q/L)

question

anytime that the marginal product of labor is greater than the average product of labor --

answer

the average product of labor increases

question

anytime that the marginal product of labor is less than the average product of labor --

answer

the average product of labor decreases

question

What economic concept does the slope of the TC curve represent?

answer

marginal product

question

when the slope of the total product curve increases --

answer

the marginal product curve increases

question

when slope decreases after its maximum it implies that --

answer

output is increasing at a decreasing rate

MPL goes down

question

MPL > APL

answer

APL is increasing

question

MPL < APL

answer

APL is decreasing

question

MPL = APL

answer

APL is at its maximum

question

economic cost is the same thing as

answer

opportunity cost

question

economic cost =

answer

explicit cost + implicit cost

question

explicit cost

answer

direct payment like paying wages, rent, interest, or materials

question

implicit cost

answer

amount that is given up to use a resource that a firm already owns

question

economic profit =

answer

total revenue - total costs (explicit and implicit)

question

$0 economic profit means

answer

a firm is doing just as well as its next best alternative

question

when a firm has $0 economic profit, it still has --

answer

counting profit

question

economists use the concept of economic profit to --

answer

compare options

question

What would it mean if a firm and other firms in the industry had negative economic profit?

answer

the the firm is not doing as well as its next best alternative and that firms would exit the industry in the long run

question

positive economic profit implies that a firm is --

answer

doing better than its next best alternative, and firms will enter the industry in the long run

question

fixed cost (FC)

answer

cost that does not vary with output

question

variable cost (VC)

answer

cost that varies with output

question

total cost (TC) =

answer

FC + VC

question

capital is an example of a

answer

fixed cost

question

labor is an example of a

answer

variable cost

question

average fixed cost

answer

fixed cost per unit of output

question

average variable cost

answer

variable cost per unit of output

question

average total cost

answer

total cost per unit of output

question

marginal cost

answer

additional cost from an additional unit of output

question

slope of total cost curve =

answer

marginal cost

question

slope of variable cost curve =

answer

marginal cost

question

for any given quantity, the slope of total cost and the slope of variable cost are --

answer

the same

question

MC < ATC

answer

ATC is decreasing

question

MC = ATC

answer

ATC is at its minimum

question

MC > ATC

answer

ATC is decreasing

question

MC < AVC

answer

AVC is decreasing

question

MC = AVC

answer

AVC is at its minimum

question

MC > AVC

answer

AVC is increasing

question

why does marginal cost initially decline and then increase?

answer

the shape of the marginal cost curve is driven by the shape of the marginal product curve

question

when marginal product increases --

answer

marginal cost decreases

question

when marginal product hits its max --

answer

marginal cost hits its minimum

question

marginal cost is the mirror image of --

answer

marginal product

question

average variable cost is the mirror image of --

answer

average product

question

AFC =

answer

ATC - AVC

question

when the 100th bicycle was produced w=the total cost of production was $10,000 and fixed cost was $4,000. the marginal cost of the 100th bicycle was $80

what happens to ATC and AVC?

answer

with the production of the 100th bicycle AVC increased and ATC decreased

question

suppose that the following diagram represents the cost curves for Betty's Burgers. which of the following will shift up the ATC curve and not the MC or AVC curves

answer

an increase in the rental rate for the restaurant building that betty owns

question

what shifts the ATC but not the MC or the AVC

answer

a change in fixed cost

question

the cost of a restaurant would be considered _________ in the short-run, because it does not vary with output

answer

fixed

question

when a variable cost increases, all of the cost curves shift up EXCEPT --

answer

average fixed cost

question

a firm in the long run has more _______ in what factors of production it will use when changing its output

answer

flexibility

question

since a firm has more flexibility in the long run, its long run economic cost will be --

answer

at least as low as its short run economic cost

question

MPL / w

answer

additional output from spending an additional dollar on labor

question

MPK / w

answer

additional output from spending an additional dollar on capital

question

suppose that we are manufacturing 200 bicycles a month. we have 5 workers and 2 units of capital. the MPL is 2 bicycles per day and the MPK is 4 bicycles per day. the daily wage rate is $160 and the daily rental rate of capital is $200.

is this firm minimizing costs? if not, what adjustments should the firm make to minimize the cost of producing 200 bicycles a month?

answer

no, the firm should produce the same number of bicycles with more capital and less labor

question

when MPK decreases and MPL increases --

answer

the inequality gets closer to equality

question

to produce the greater output in the short run firms _________, but they are less _________

answer

hire more workers, productive

question

in the long run --

answer

all inputs can be varied

question

economies of scale exists when --

answer

long run average cost is decreasing

question

when per unit costs decrease as output increases, it is known as --

answer

economies of scale

question

as a firm expands its output it can obtain economies of scale by --

answer

using more sophisticated capital
increasing worker specialization
greater managerial flexibility on usage of inputs

question

diseconomies of scale

answer

when the long run average cost is increasing

question

when per unit cost increases as output increase, it is known as --

answer

diseconomies of scale

question

diseconomies of scale are caused by --

answer

costs associated with increased firm size

question

minimum efficient scale

answer

minimum output per period a firm must produce to minimize long run average cost

question

firms that experience large amounts of economies of scale, typically choose to produce with a --

answer

heavy investment in capital

question

as long as marginal cost of production < average cost --

answer

expanding output will bring per unit cost down

question

commercial jet and automobile companies experience --

answer

massive amounts of economies of scale

question

economies of scope

answer

cost advantages of producing multiple products in one firm

question

many retail establishments experience --

answer

economies of scope

question

at the current level of output, long run MC is $200 and long run AC is $175

this implies that --

answer

there are diseconomies of scale

question

MC > AC --

answer

AC is increasing

question

when average cost is increasing, a firm is experiencing --

answer

diseconomies of scale

question

in the 1990s when Microsoft got sued for anti-competitive practices, one popular proposal was to break Microsoft into multiple companies, each company producing a different product. so rather than Microsoft producing the Windows operating systems and MS Word and MS Excel and Internet Explorer, the idea was that each of these products would be produced by a different company. however, if Microsoft was experiencing ______________, breaking Microsoft into multiple companies would actually increase costs

answer

economies of scope

question

learning can occur as --

answer

individuals learn to perform tasks in less time

firms learn how to make the entire organization more efficient

question

learning economies take place over the course of --

answer

many periods

question

economies of scale are shown as a movement along the --

answer

long run average cost curve

question

the effect of learning is a downward shift of --

answer

the long run average cost curve

question

each year Noland's lawn gnomes sells 5 million lawn gnomes. despite the fact that input prices have not changed, the long run average cost oof producing 5 million gnomes decreased. this is due to --

answer

learning

question

the most competitive of the market structures --

answer

perfect competition

question

perfect competition

answer

a firm can sell as much as it wants at the going market price

so to sell more the firm does NOT need to lower its price

but if it tries to raise its price above going market price -- it sells nothing

question

a firm with market power can --

answer

raise its price without losing all of its customers

question

more substitutes -->

answer

more elastic

question

perfect substitutes -->

answer

perfectly elastic

question

an elasticity of demand = -infinite is a

answer

price taker

question

at the market price, a firm's demand curve and marginal revenue curve are --

answer

horizontal

question

in perfect competition, demand and marginal revenue both equal

answer

market price

question

if the slope of total revenue is constant, it is implied that --

answer

marginal revenue does not change with quantity

question

profit is maximized when --

answer

marginal revenue = marginal cost

question

after the point where MR = MC, producing more means --

answer

the additional cost is greater than the additional revenue

profit starts DECREASING

question

profit max =

answer

(P - ATC)(q)

question

If the market price is $7.00, should the firm shut down and produce nothing in the short run?

answer

no, it minimizes its losses by staying open and producing 750

question

producer's surplus

answer

gains from trade to the producer (firm) from participating in the market

question

producer's surplus =

answer

fixed costs + profit max

question

if when a firm shuts down its profits are negative fixed costs, it has a _______ producer surplus, even when profits are negative

answer

positive

question

short run shutdown rule

answer

P < AVC

question

q=0 --> profit max = - fixed costs

answer

when a firm shuts down and produces nothing at all

question

in perfect competition P = MC is the same thing as --

answer

MR = MC

question

when P > ATC the firm will --

answer

earn positive economic profit

question

when P = ATC --

answer

economic profit = 0

question

when ATC > P > AVC --

answer

profit will be negative, but it will be best for the firm to produce where P = MC

question

in the long run, all inputs are --

answer

variable

question

when a firm shuts down their costs become --

answer

question

market entry is shown by the short-run market supply curve shifting --

answer

right

question

the short-run market supply curve continues to shift right until --

answer

price = average cost

question

long run competitive equilibrium --

answer

PP = Minimum of long-run Average Costs

question

constant cost industry

answer

as the industry changes size, firm costs do not change

question

a constant cost industry long run supply curve is --

answer

horizontal

question

increasing cost industry

answer

as the industry increases in size with firm entry, input costs increase

question

assuming a decreasing cost industry, when demand increases in a perfectly competitive market, in the long run the price of the product ________ the initial price and the quantity ________.

answer

falls below, increases

question

if price and marginal cost have not changed, the profit maximizing output--

answer

does not change

question

cost minimization quantity --

answer

MC = ATC when ATC is at its minimum

1 of 122

question

production function

answer

f(K, L) = q

K = capital
L = labor
q = output

question

capital and labor are

answer

economic resources

question

economic resources are also called

answer

factors of production / inputs

question

capital

answer

tools, machinery, plants and equipment used in the production process

question

microeconomic short run

answer

period of time so brief that at least one factor of production cannot be varied

question

microeconomic long run

answer

period of time long enough that all inputs can be varied

question

the amount of time that differentiates the short run from the long run varies by:

answer

industry

question

in the short run, if Boeing wants to produce more airplanes it could --

answer

hire additional workers
purchase additional capital

question

marginal product of labor

answer

additional output from an extra unit of labor

question

diminishing marginal returns

answer

when a product is declining

question

law of diminishing marginal returns

answer

as more of an input like labor is added, eventually the marginal product will begin to diminish

question

diminishing marginal returns implies --

answer

output is increasing at a decreasing rate

question

average product of labor

answer

output per worker (Q/L)

question

anytime that the marginal product of labor is greater than the average product of labor --

answer

the average product of labor increases

question

anytime that the marginal product of labor is less than the average product of labor --

answer

the average product of labor decreases

question

What economic concept does the slope of the TC curve represent?

answer

marginal product

question

when the slope of the total product curve increases --

answer

the marginal product curve increases

question

when slope decreases after its maximum it implies that --

answer

output is increasing at a decreasing rate

MPL goes down

question

MPL > APL

answer

APL is increasing

question

MPL < APL

answer

APL is decreasing

question

MPL = APL

answer

APL is at its maximum

question

economic cost is the same thing as

answer

opportunity cost

question

economic cost =

answer

explicit cost + implicit cost

question

explicit cost

answer

direct payment like paying wages, rent, interest, or materials

question

implicit cost

answer

amount that is given up to use a resource that a firm already owns

question

economic profit =

answer

total revenue - total costs (explicit and implicit)

question

$0 economic profit means

answer

a firm is doing just as well as its next best alternative

question

when a firm has $0 economic profit, it still has --

answer

counting profit

question

economists use the concept of economic profit to --

answer

compare options

question

What would it mean if a firm and other firms in the industry had negative economic profit?

answer

the the firm is not doing as well as its next best alternative and that firms would exit the industry in the long run

question

positive economic profit implies that a firm is --

answer

doing better than its next best alternative, and firms will enter the industry in the long run

question

fixed cost (FC)

answer

cost that does not vary with output

question

variable cost (VC)

answer

cost that varies with output

question

total cost (TC) =

answer

FC + VC

question

capital is an example of a

answer

fixed cost

question

labor is an example of a

answer

variable cost

question

average fixed cost

answer

fixed cost per unit of output

question

average variable cost

answer

variable cost per unit of output

question

average total cost

answer

total cost per unit of output

question

marginal cost

answer

additional cost from an additional unit of output

question

slope of total cost curve =

answer

marginal cost

question

slope of variable cost curve =

answer

marginal cost

question

for any given quantity, the slope of total cost and the slope of variable cost are --

answer

the same

question

MC < ATC

answer

ATC is decreasing

question

MC = ATC

answer

ATC is at its minimum

question

MC > ATC

answer

ATC is decreasing

question

MC < AVC

answer

AVC is decreasing

question

MC = AVC

answer

AVC is at its minimum

question

MC > AVC

answer

AVC is increasing

question

why does marginal cost initially decline and then increase?

answer

the shape of the marginal cost curve is driven by the shape of the marginal product curve

question

when marginal product increases --

answer

marginal cost decreases

question

when marginal product hits its max --

answer

marginal cost hits its minimum

question

marginal cost is the mirror image of --

answer

marginal product

question

average variable cost is the mirror image of --

answer

average product

question

AFC =

answer

ATC - AVC

question

when the 100th bicycle was produced w=the total cost of production was $10,000 and fixed cost was $4,000. the marginal cost of the 100th bicycle was $80

what happens to ATC and AVC?

answer

with the production of the 100th bicycle AVC increased and ATC decreased

question

suppose that the following diagram represents the cost curves for Betty's Burgers. which of the following will shift up the ATC curve and not the MC or AVC curves

answer

an increase in the rental rate for the restaurant building that betty owns

question

what shifts the ATC but not the MC or the AVC

answer

a change in fixed cost

question

the cost of a restaurant would be considered _________ in the short-run, because it does not vary with output

answer

fixed

question

when a variable cost increases, all of the cost curves shift up EXCEPT --

answer

average fixed cost

question

a firm in the long run has more _______ in what factors of production it will use when changing its output

answer

flexibility

question

since a firm has more flexibility in the long run, its long run economic cost will be --

answer

at least as low as its short run economic cost

question

MPL / w

answer

additional output from spending an additional dollar on labor

question

MPK / w

answer

additional output from spending an additional dollar on capital

question

answer

no, the firm should produce the same number of bicycles with more capital and less labor

question

when MPK decreases and MPL increases --

answer

the inequality gets closer to equality

question

to produce the greater output in the short run firms _________, but they are less _________

answer

hire more workers, productive

question

in the long run --

answer

all inputs can be varied

question

economies of scale exists when --

answer

long run average cost is decreasing

question

when per unit costs decrease as output increases, it is known as --

answer

economies of scale

question

as a firm expands its output it can obtain economies of scale by --

answer

using more sophisticated capital
increasing worker specialization
greater managerial flexibility on usage of inputs

question

diseconomies of scale

answer

when the long run average cost is increasing

question

when per unit cost increases as output increase, it is known as --

answer

diseconomies of scale

question

diseconomies of scale are caused by --

answer

costs associated with increased firm size

question

minimum efficient scale

answer

minimum output per period a firm must produce to minimize long run average cost

question

firms that experience large amounts of economies of scale, typically choose to produce with a --

answer

heavy investment in capital

question

as long as marginal cost of production < average cost --

answer

expanding output will bring per unit cost down

question

commercial jet and automobile companies experience --

answer

massive amounts of economies of scale

question

economies of scope

answer

cost advantages of producing multiple products in one firm

question

many retail establishments experience --

answer

economies of scope

question

at the current level of output, long run MC is $200 and long run AC is $175

this implies that --

answer

there are diseconomies of scale

question

MC > AC --

answer

AC is increasing

question

when average cost is increasing, a firm is experiencing --

answer

diseconomies of scale

question

answer

economies of scope

question

learning can occur as --

answer

individuals learn to perform tasks in less time

firms learn how to make the entire organization more efficient

question

learning economies take place over the course of --

answer

many periods

question

economies of scale are shown as a movement along the --

answer

long run average cost curve

question

the effect of learning is a downward shift of --

answer

the long run average cost curve

question

each year Noland's lawn gnomes sells 5 million lawn gnomes. despite the fact that input prices have not changed, the long run average cost oof producing 5 million gnomes decreased. this is due to --

answer

learning

question

the most competitive of the market structures --

answer

perfect competition

question

perfect competition

answer

question

a firm with market power can --

answer

raise its price without losing all of its customers

question

more substitutes -->

answer

more elastic

question

perfect substitutes -->

answer

perfectly elastic

question

an elasticity of demand = -infinite is a

answer

price taker

question

at the market price, a firm's demand curve and marginal revenue curve are --

answer

horizontal

question

in perfect competition, demand and marginal revenue both equal

answer

market price

question

if the slope of total revenue is constant, it is implied that --

answer

marginal revenue does not change with quantity

question

profit is maximized when --

answer

marginal revenue = marginal cost

question

after the point where MR = MC, producing more means --

answer

the additional cost is greater than the additional revenue

profit starts DECREASING

question

profit max =

answer

(P - ATC)(q)

question

If the market price is $7.00, should the firm shut down and produce nothing in the short run?

answer

no, it minimizes its losses by staying open and producing 750

question

producer's surplus

answer

gains from trade to the producer (firm) from participating in the market

question

producer's surplus =

answer

fixed costs + profit max

question

if when a firm shuts down its profits are negative fixed costs, it has a _______ producer surplus, even when profits are negative

answer

positive

question

short run shutdown rule

answer

P < AVC

question

q=0 --> profit max = - fixed costs

answer

when a firm shuts down and produces nothing at all

question

in perfect competition P = MC is the same thing as --

answer

MR = MC

question

when P > ATC the firm will --

answer

earn positive economic profit

question

when P = ATC --

answer

economic profit = 0

question

when ATC > P > AVC --

answer

profit will be negative, but it will be best for the firm to produce where P = MC

question

in the long run, all inputs are --

answer

variable

question

when a firm shuts down their costs become --

answer

question

market entry is shown by the short-run market supply curve shifting --

answer

right

question

the short-run market supply curve continues to shift right until --

answer

price = average cost

question

long run competitive equilibrium --

answer

PP = Minimum of long-run Average Costs

question

constant cost industry

answer

as the industry changes size, firm costs do not change

question

a constant cost industry long run supply curve is --

answer

horizontal

question

increasing cost industry

answer

as the industry increases in size with firm entry, input costs increase

question

assuming a decreasing cost industry, when demand increases in a perfectly competitive market, in the long run the price of the product ________ the initial price and the quantity ________.

answer

falls below, increases

question

if price and marginal cost have not changed, the profit maximizing output--

answer

does not change

question

cost minimization quantity --

answer

MC = ATC when ATC is at its minimum

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