Production and Costs - Assignment Essays

question

Firm

answer

combines inputs of labor, capital, land, and raw or finished component materials to produce outputs

question

Production

answer

•the process (or processes) a firm uses to transform inputs (ex: labor, capital, raw materials) into outputs, [ex} the goods or services the firm wishes to sell.

question

Natural Resources

answer

Raw materials supplied by nature

question

Labor

answer

Human effort directed toward producing goods and services

question

Capital

answer

physical capital, the machines, equipment, and buildings that one uses to produce the product

question

Technology

answer

refers to the process or processes for producing the product

question

Entrepreneurship

answer

the process of starting, organizing, managing, and assuming the responsibility for a business

question

The Production Function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good

Q= f [L, K] or Q = f [L]

question

Fixed Inputs

answer

inputs that cannot be changed in the short run

question

Variable Inputs

answer

inputs that can be changed in the short run

question

Short Run

answer

the time period in which at least one input is fixed

question

Long Run

answer

the time period in which all inputs can be varied

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Marginal Product

answer

the increase in output that arises from an additional unit of input

question

The Law of Diminishing Marginal Product

answer

The marginal product of an input gets smaller as one uses more of that input, ceteris paribus.

question

Private Enterprise

answer

system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)

question

Profit Equation

answer

Total Revenue - Total Cost

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Total Revenue

answer

Price x Quantity

question

Explicit Costs

answer

out-of-pocket costs, that is, payments that are actually made

question

Implicit Costs

answer

are more subtle, they represent the opportunity cost of using resources already owned by the firm

question

Accounting Profit

answer

total revenue minus total explicit cost

question

Economic Profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

Factor Payments

answer

are what the firm pays for the use of the factors of production

question

Circular Flow Diagram

answer

the total cost divided by the quantity produced

question

Average cost

answer

the cost of producing one more unit of a good

question

Marginal Cost

answer

variable cost divided by the quantity of output

question

Average Variable Cost

answer

costs that have already been incurred and cannot be recovered

question

Sunk Costs

answer

alternative methods of combining/comparing inputs to produce output

question

Production Technologies

answer

refers to the situation where, as the quantity of output goes up, the cost per unit goes down

question

Economies of Scale

answer

a curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve

question

long-run average cost curve

answer

Both AC and AVC slope downwards as greater inputs are added to a production process, output will increase faster and so AC falls. Beyond the lowest AC point, firms will experience diminishing returns to a fixed factor, and then AC and AVC starts to rise.

Important: DIMINISHING RETURNS TO A FIXED FACTOR

question

Short Run Average Cost Curves

answer

the situation in which a firm's long-run average costs rise as the firm increases output

question

diseconomies of scale

answer

when a firm gets so large that it operates inefficiently, experiencing diseconomies of scale

question

Leviathan Effect

answer

combine capital, labor and other inputs to create products.

question

A production function describes how firms...

answer

office rent

question

Consider ADs and More, an advertising agency. Which of the following would be more likely to be a fixed cost...

answer

all factors in production can be modified.

question

Economists refer to long-term production as a time frame when...

answer

how much output a firm can produce given their inputs or factors of production.

question

The production function describes how...

answer

the total product curve reaches its maximum point.

question

When the value of the marginal product reaches zero, then that point is also the place where...

answer

$200
Total variable cost = Total cost - total fixed cost = ($35 - 25) x 20

question

A shoe factory produces 20 units of output. Its average fixed cost (AFC) = $25, average total cost (ATC) = $35, and marginal cost (MC) = $15. The shoe factory's total variable cost is ________.

answer

Variable costs

question

________ include all of the costs of production that increase with the quantity produced.

answer

the $10,000 in foregone rent and the $4 million cost of the mall.

question

Danielle wants to expand her business and use the 10 acre property she owns and rents to a local sheep rancher for $10,000/year, to build a mall for $4 million. Danielle's total economic costs of the expansion plan are...

answer

$60,000 and $38,000.

Accounting profit = Revenue - Explicit cost. Economic Profit = Revenue (sales) - Cost (explicit + implicit costs)

question

Dixie, a cattle ranch owner, earns $350,000/month in revenue. Her monthly costs include: Administrative cost: $35,000. Feed: $40,000. Equipment and maintenance. $55,000. Labor: $90,000. Transportation: $20,000. Miscellaneous: $35,000. Foregone rent for the land used for cattle grazing: $18,000. The value of her daughter's time that helps on weekends: $4,000. Owner's salary: $15,000. Dixie's accounting and economic profit respectively are...

answer

average variable cost will decrease and then increase.

question

As production increases...

answer

should have no effect on output decisions

question

Sunk costs ________.

answer

It is a scenario where expanding all inputs proportionately does not change the average cost of production.

question

What does "constant returns to scale" mean?

answer

increase productivity.

question

In the long run as the addition of technology becomes possible, firms can...

answer

none of these are examples; there are no fixed costs in the long run

question

Which of the following is an example of a long-run fixed cost?

answer

many small firms.

question

If there are rapid diseconomies of scale in a market, that market is likely to include...

answer

You would find less expensive designer for the store's advertising posters.

question

What would happen if your boss at the bookstore asked you to decrease some of the business' variable costs?

answer

MaxTV uses electronic components, LED lights, labor and other inputs to produce televisions

question

MaxTV's board of directors is re-assessing their company strategy. They take a look at their production function, which describes how...

answer

The process of production is the means by which a firm uses inputs to produce outputs.

question

Select the true statement in the following statements about the activity of production....

answer

A large order for steel I-beams requires that Steely Dan, Inc. hire 5 temporary workers to boost his company's production line to complete the order on time.

Only variable cost changed.

question

Which of the following is an example of a short run production scenario?

answer

the quantity of output produced for a given quantity of labor (number of workers).

question

Total product refers to...

answer

6 units

ATC = $450/6 = $75 MC = $450-375= $75

question

According to the following cost information, marginal cost and average total cost are equal when the firm produces ________.

answer

fixed costs; do not change

question

A firm's ________ consist of expenditures that must be made before production starts that typically, over the short run, ________, regardless of the level of production.

answer

explicit costs-
they are payments actually made.

question

Salary payments are...

answer

many firms of various sizes.

question

If there are constant returns of scale over a wide range of output in a market, that market is likely to include...

answer

diseconomies of scale (long -run cost curve)

question

What is illustrated by the upward-sloping portion of a long run average cost curve?

answer

more capital resources.

question

A construction company in the United States, in comparison with a small economically disadvantaged country, will most likely use...

answer

In the short run, at least one resource is fixed; in the long run, all resources are variable.

question

How do economists distinguish between the long run and the short run?

answer

Ads and More was able to change some of its fixed costs and is now under long term conditions.

question

Ads and More, an advertising agency, recently expanded their offices as their 3 year lease came to an end. Which best describes Ads and More's situation as its new lease was signed?

answer

eventually peak then decrease.

question

If Jimmy's Dairy, cheese producer, keeps hiring more workers for their production lines, the total production will...

answer

the cheese molds and machines

question

Jimmy's Dairy produces cheddar cheese. Which of the following would be considered capital input for Jimmy's Dairy?

answer

Diminishing marginal returns

question

________ occur when the marginal gain in output diminishes as each additional unit of input is added.

answer

marginal cost must be higher than average total cost

question

If a firm's average total cost is increasing, then...

answer

the foregone rent from the cattle rancher

question

Diego wants to expand his business to build a warehouse and office building for $2 million. He'll use the 5 acre property he owns and currently rents to a local cattle rancher for $5,000. What are the implicit costs of of this expansion?

answer

$2 per taco

Price - cost per unit = profit margin.

question

Pilar's taco trucks sells about 400 various tacos per day for an average price of $5. On average, each tacos cost $3 (includes labor, materials and miscellaneous), Pilar's profit margin is ________.

answer

$25,000

question

An entrepreneur quits a job where she was paid $75,000 to set up her own business. The new firm had sales revenue of $300,000 last year, while spending $150,000 on compensation for employees (excluding the owner), $25,000 on capital, and $25,000 on materials. What was the firm's economic profit?

answer

Average total cost decreases and then increases.

Marginal cost eventually increases.

question

The following cost information shows that as production increases...

answer

$80; $60
AVC = VC / Q = $300/5; ATC = TC / Q = $400/5

question

When this firm produces 5 units, the average total and average variable cost respectively are

answer

$300
Total cost = ($25 + 5 ) x 10 units

question

Suppose that a firm produces 10 units of output. Its average variable cost (AVC) = $25, average fixed cost (AFC) = $5, and marginal cost (MC) = $30. The firm's total cost is ________.

answer

the cost of the truck and repairs are sunk costs and her food truck can be profitable.

question

Jodie bought a used van to start her food truck business for $8,000. She then spent $7,000 to repair and decorate it. Jodie's mom insists that the business only makes $2,500 per week in revenue which does not cover the cost of the truck. Jodie argues that...

answer

total cost will keep increasing.

question

As production increases

answer

average total cost is minimized

question

Marginal cost is equal to average total cost when ________.

answer

a foregone opportunity to do something else with your resources

question

Implicit costs are ________.

answer

Because economic cost includes implicit and explicit costs, accounting profit is higher than economic profit.

question

Which of the following statements is true about accounting profit?

answer

Divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be.

question

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

answer

constant returns to scale

question

When the Long Run Average Cost (LRAC) curve is horizontal, it implies that there are ________.

answer

minimize cost and maximize profit.
minimize cost and maximize profit.

question

In the long run, firms try to decide which combination of technology, capital, labor and other resources they should use in order to

answer

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1 of 79

question

Firm

answer

combines inputs of labor, capital, land, and raw or finished component materials to produce outputs

question

Production

answer

•the process (or processes) a firm uses to transform inputs (ex: labor, capital, raw materials) into outputs, [ex} the goods or services the firm wishes to sell.

question

Natural Resources

answer

Raw materials supplied by nature

question

Labor

answer

Human effort directed toward producing goods and services

question

Capital

answer

physical capital, the machines, equipment, and buildings that one uses to produce the product

question

Technology

answer

refers to the process or processes for producing the product

question

Entrepreneurship

answer

the process of starting, organizing, managing, and assuming the responsibility for a business

question

The Production Function

answer

the relationship between quantity of inputs used to make a good and the quantity of output of that good

Q= f [L, K] or Q = f [L]

question

Fixed Inputs

answer

inputs that cannot be changed in the short run

question

Variable Inputs

answer

inputs that can be changed in the short run

question

Short Run

answer

the time period in which at least one input is fixed

question

Long Run

answer

the time period in which all inputs can be varied

question

Marginal Product

answer

the increase in output that arises from an additional unit of input

question

The Law of Diminishing Marginal Product

answer

The marginal product of an input gets smaller as one uses more of that input, ceteris paribus.

question

Private Enterprise

answer

system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)

question

Profit Equation

answer

Total Revenue - Total Cost

question

Total Revenue

answer

Price x Quantity

question

Explicit Costs

answer

out-of-pocket costs, that is, payments that are actually made

question

Implicit Costs

answer

are more subtle, they represent the opportunity cost of using resources already owned by the firm

question

Accounting Profit

answer

total revenue minus total explicit cost

question

Economic Profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

Factor Payments

answer

are what the firm pays for the use of the factors of production

question

Circular Flow Diagram

answer

the total cost divided by the quantity produced

question

Average cost

answer

the cost of producing one more unit of a good

question

Marginal Cost

answer

variable cost divided by the quantity of output

question

Average Variable Cost

answer

costs that have already been incurred and cannot be recovered

question

Sunk Costs

answer

alternative methods of combining/comparing inputs to produce output

question

Production Technologies

answer

refers to the situation where, as the quantity of output goes up, the cost per unit goes down

question

Economies of Scale

answer

a curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve

question

long-run average cost curve

answer

question

Short Run Average Cost Curves

answer

the situation in which a firm's long-run average costs rise as the firm increases output

question

diseconomies of scale

answer

when a firm gets so large that it operates inefficiently, experiencing diseconomies of scale

question

Leviathan Effect

answer

combine capital, labor and other inputs to create products.

question

A production function describes how firms...

answer

office rent

question

Consider ADs and More, an advertising agency. Which of the following would be more likely to be a fixed cost...

answer

all factors in production can be modified.

question

Economists refer to long-term production as a time frame when...

answer

how much output a firm can produce given their inputs or factors of production.

question

The production function describes how...

answer

the total product curve reaches its maximum point.

question

When the value of the marginal product reaches zero, then that point is also the place where...

answer

$200
Total variable cost = Total cost - total fixed cost = ($35 - 25) x 20

question

A shoe factory produces 20 units of output. Its average fixed cost (AFC) = $25, average total cost (ATC) = $35, and marginal cost (MC) = $15. The shoe factory's total variable cost is ________.

answer

Variable costs

question

________ include all of the costs of production that increase with the quantity produced.

answer

the $10,000 in foregone rent and the $4 million cost of the mall.

question

answer

$60,000 and $38,000.

Accounting profit = Revenue - Explicit cost. Economic Profit = Revenue (sales) - Cost (explicit + implicit costs)

question

answer

average variable cost will decrease and then increase.

question

As production increases...

answer

should have no effect on output decisions

question

Sunk costs ________.

answer

It is a scenario where expanding all inputs proportionately does not change the average cost of production.

question

What does "constant returns to scale" mean?

answer

increase productivity.

question

In the long run as the addition of technology becomes possible, firms can...

answer

none of these are examples; there are no fixed costs in the long run

question

Which of the following is an example of a long-run fixed cost?

answer

many small firms.

question

If there are rapid diseconomies of scale in a market, that market is likely to include...

answer

You would find less expensive designer for the store's advertising posters.

question

What would happen if your boss at the bookstore asked you to decrease some of the business' variable costs?

answer

MaxTV uses electronic components, LED lights, labor and other inputs to produce televisions

question

MaxTV's board of directors is re-assessing their company strategy. They take a look at their production function, which describes how...

answer

The process of production is the means by which a firm uses inputs to produce outputs.

question

Select the true statement in the following statements about the activity of production....

answer

A large order for steel I-beams requires that Steely Dan, Inc. hire 5 temporary workers to boost his company's production line to complete the order on time.

Only variable cost changed.

question

Which of the following is an example of a short run production scenario?

answer

the quantity of output produced for a given quantity of labor (number of workers).

question

Total product refers to...

answer

6 units

ATC = $450/6 = $75 MC = $450-375= $75

question

According to the following cost information, marginal cost and average total cost are equal when the firm produces ________.

answer

fixed costs; do not change

question

A firm's ________ consist of expenditures that must be made before production starts that typically, over the short run, ________, regardless of the level of production.

answer

explicit costs-
they are payments actually made.

question

Salary payments are...

answer

many firms of various sizes.

question

If there are constant returns of scale over a wide range of output in a market, that market is likely to include...

answer

diseconomies of scale (long -run cost curve)

question

What is illustrated by the upward-sloping portion of a long run average cost curve?

answer

more capital resources.

question

A construction company in the United States, in comparison with a small economically disadvantaged country, will most likely use...

answer

In the short run, at least one resource is fixed; in the long run, all resources are variable.

question

How do economists distinguish between the long run and the short run?

answer

Ads and More was able to change some of its fixed costs and is now under long term conditions.

question

Ads and More, an advertising agency, recently expanded their offices as their 3 year lease came to an end. Which best describes Ads and More's situation as its new lease was signed?

answer

eventually peak then decrease.

question

If Jimmy's Dairy, cheese producer, keeps hiring more workers for their production lines, the total production will...

answer

the cheese molds and machines

question

Jimmy's Dairy produces cheddar cheese. Which of the following would be considered capital input for Jimmy's Dairy?

answer

Diminishing marginal returns

question

________ occur when the marginal gain in output diminishes as each additional unit of input is added.

answer

marginal cost must be higher than average total cost

question

If a firm's average total cost is increasing, then...

answer

the foregone rent from the cattle rancher

question

answer

$2 per taco

Price - cost per unit = profit margin.

question

Pilar's taco trucks sells about 400 various tacos per day for an average price of $5. On average, each tacos cost $3 (includes labor, materials and miscellaneous), Pilar's profit margin is ________.

answer

$25,000

question

answer

Average total cost decreases and then increases.

Marginal cost eventually increases.

question

The following cost information shows that as production increases...

answer

$80; $60
AVC = VC / Q = $300/5; ATC = TC / Q = $400/5

question

When this firm produces 5 units, the average total and average variable cost respectively are

answer

$300
Total cost = ($25 + 5 ) x 10 units

question

Suppose that a firm produces 10 units of output. Its average variable cost (AVC) = $25, average fixed cost (AFC) = $5, and marginal cost (MC) = $30. The firm's total cost is ________.

answer

the cost of the truck and repairs are sunk costs and her food truck can be profitable.

question

answer

total cost will keep increasing.

question

As production increases

answer

average total cost is minimized

question

Marginal cost is equal to average total cost when ________.

answer

a foregone opportunity to do something else with your resources

question

Implicit costs are ________.

answer

Because economic cost includes implicit and explicit costs, accounting profit is higher than economic profit.

question

Which of the following statements is true about accounting profit?

answer

Divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be.

question

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

answer

constant returns to scale

question

When the Long Run Average Cost (LRAC) curve is horizontal, it implies that there are ________.

answer

minimize cost and maximize profit.
minimize cost and maximize profit.

question

In the long run, firms try to decide which combination of technology, capital, labor and other resources they should use in order to

answer

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