Chapter 7 Figure 214 The Long run Average Total

102.

For the output levels in Table 21.4, the minimum of the average variable cost curve occurs at a production

rate of

103.

Complete Table 21.5:

Total fixed costs in Table 21.5 are equal to

104.

Complete Table 21.5:

The marginal cost of the third unit of output in Table 21.5 is

105.

Complete Table 21.5:

The total cost of 3 units of output in Table 21.5 is

106.

Complete Table 21.5:

The total variable cost of 2 units of output in Table 21.5 is

107.

Complete Table 21.5:

The average variable cost of the second unit of output in Table 21.5 is

108.

Complete Table 21.5:

The total variable cost of the first unit of output in Table 21.5 is

109.

In Figure 20.4, a firm that produces over 800 units of output should choose a plant with which short-run average

total cost function?

110.

In Figure 21.4, a firm that produces between 600 and 800 units per period should choose a plant with a short–

run average total cost function of

111.

In Figure 21.4, the long-run average total cost curve is given by the curved line segment

112.

Refer to Figure 21.5. Economies of scale occur in the following range of factory sizes

113.

Refer to Figure 21.5. Diseconomies of scale begin to occur

114. Which of the following is least likely to increase productivity?

115. Unit labor cost is equal to the

116. When the wage rate is $10 per hour and the MPP of a worker is 15 units per hour, the unit labor cost is

A. $0.67 per unit.

118. Assuming labor is a variable input, an increase in labor productivity will result in

119. Technological changes that increase productivity shift the

120. Higher education levels and better management

121. The creation of the World Wide Web has contributed to all of the following except

122. One In the News article titled “Funeral Giant Moves In on Small Rivals” reports that profit for a Houston–

based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general.

Such profits are most likely the result of

123. According to the World View article titled “United States Gains Cost Advantage,” during the last decade,

unit labor costs in the United States declined

124. The World View article titled “United States Gains Cost Advantage” says productivity advances have

contributed to U.S. competitiveness in world markets. When improvements in productivity reduce costs, the

production function shifts

A. Upward and cost curves shift upward.

125. The In The News article “Ford Pumps $400 Million into Kansas City Plant” says that

126. Actual output will always equal the limit described in the production function.

127. The productivity of any input is independent and is not affected by the other resources that are used.

128. When a firm is able to achieve the output indicated by a production function, it is producing with

technical efficiency.

129. Short-run choices imply that at least one factor of production is fixed.

130. Total output may continue to rise even though marginal physical product is declining.

131. Marginal physical product is the change in total output associated with one additional unit of input.

132. Total output may continue to rise even though marginal physical product is negative.

133. The law of diminishing returns indicates that the marginal physical product of a variable input declines as more

of it is employed, ceteris paribus.

TRUE

134. Total revenue plus total cost equals profit.

135. Marginal cost always reflects the cost of variable factors.

136. If MPP declines with greater output, then MC must increase.

137. Total cost refers to the market value of all resources used in producing a good or service.

138. The total cost at a zero level of output is always equal to the variable cost.

139. When the marginal cost curve is below the average total cost curve, the average total cost curve must be

falling.

TRUE

140. The marginal cost curve intersects the minimum of the average total cost curve and also the minimum of the

average variable cost curve.

TRUE

141. The vertical distance between a firm’s ATC and AVC curves grows smaller as output increases.

142. The difference between the accountant’s and the economist’s measurement of cost equals implicit costs.

143. There are still some fixed costs in the long run, such as rent.

144. In the long run, a company should choose the plant size that yields the lowest average total cost for the desired

rate of output.

145. The long-run ATC curve is simply a composite of the best short-run ATC possibilities.

146. If choosing a larger plant will reduce minimum average costs, there are economies of scale.

147. If a firm has constant returns to scale, the long-run cost curve will be downward-sloping.

148. Diseconomies of scale imply that the average total cost curve is downward-sloping in the long run.

149. More education and better technology contribute to an increase in productivity, ceteris paribus.

150. Unit labor cost represents the increase in output because an additional worker is hired.

151. If the MPP of a worker is 12 units per hour and the wage rate is $10 per hour, the unit labor cost is equal to

$1.20 per unit of output.

152. Better management shifts the production function downward and the total cost curve upward.

153. Economists point out that if it were not for diminishing returns, we could grow enough food to feed the world in a

flowerpot. Explain what they mean.

154. Explain the concepts of explicit costs and implicit costs. Why do economists include implicit costs in

their calculation of profits?

155. Compare production costs in the short run with production costs in the long run.

156. Explain the concept of economies of scale. Identify two reasons why economies of scale exist.

157. Explain how firms’production functions and cost curves will change as science and technology advance and as

the knowledge of how to organize and manage resources improves.

Chapter 07 Test Bank Summary