ECO 251 Ch.13 Document

ECO 251 Ch.13 Document - 202 PARTS FiR " .EHAVIOR AND...

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Unformatted text preview: 202 PARTS FiR " .EHAVIOR AND THE ORGANIZATION OF INDUSTRY If total revenue is $100, explicit costs are $50, and implicit fists are $30, then ac- counting profit equals $50. if there are implicit costs of production, accounting .ofits will exceed economic p . fits. When production function gets flatter, the if a firm c tinues to employ more work s-within the same size factory, it will eventually e erience diminishing mar a‘l product. .ginal product is increasing. exhibits diminishing marginal product, the the firm will become flatter as the quantity of If the productio metion for a fir corresponding tot output expands. Fixed costs plus variable sts equal total costs. Average total costs ar otal c is divided by marginal costs. When marginal c falling. s are below verage total costs, average total costs must be If, as the qu ity produced increases, a aroduction function first exhibits increas- ing margi c 1 product and later diminishi margin al product, the corresponding ‘ —cost curve wil] be U—shaped. verage-total-cost curve crosses the marg‘ ' 1—cost curve at the minimum of ma rginal-cost curve. The average-total-cost curve in the long run is flatter 12111 the average-total-cost curve in the short run. The efficient scale for a firm is the quantity of Output tha cost. minimizes marginal In the long run, as a firm expands its production facilities, it general first experiw ences diseconornies of scale, then constant returns to scale, and final] economies of scale. ' Multiple—Choice Questions 1. Accounting profit is equal to total revenue minus a. implicit costs. explicit costs. c. the sum of implicit and explicit costs. d. marginal costs. e. variable costs. Economic profit is equal to total revenue minus a. implicit costs. b. explicit costs. © the sum of implicit and explicit costs. ci. marginal costs. e. variable costs. Use the following information to answer questions 3 and 4. Madelyn owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for $100 each. It costs Madelyn $20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested $100,000 in her factory and equipmtmt: $50,000 from her savings and $50,000 borrowed at 10 percent (assume that she could have loaned her money out at 10 percent, too). Madelyn can work at a competing pottery factory for $40,000 per ye El 1". CHAPTER 13 THE COSTS OF PRODUCTION 203 3. The accounting profit at Madelyn’s pottery factory is a. $30,000. b. $35,000. c. $70,000. @svsouo. e. $80,000. 4. The economic profit at Madeiyn’s pottery factory is $30,000. b. $35,000. c. $70,000. d. $75,000. e. $80,000. 5. If there are implicit costs of production, “an: economic profit will exceed accounting profit. Lb)? accounting profit will exceed economic profit. c. economic profit and accounting profit will be equal. (1. economic profit will always be zero. e. accounting profit will always be zero. 6. 145,23 production function exhibits diminishing marginal product, its slope becomes flatter as the quantity of the input increases. l5: becomes steeper as the quantity of the input increases. c. is linear (a straight line). d. could be any of the above. 7. If a production function exhibits diminishing marginal product, the slope of the corresponding total-cost curve a}, becomes flatter as the quantity of output increases. fibgibecomes steeper as the quantity of output increases. c. is linear (a straight line}. d. could. be any of the above. Use the following information to ansWer questions 8 and 9. Number of Workers Output 0 0 ’l 23 2 40 3 50 8. The marginal product of labor as production moves from employing one worker to employing two workers is a. 0. 13, 10. "c. ‘- 17. "d‘.’ 23. e. 40. 9. The production process described above exhibits constant marginal product of labor. increasing marginal product of labor. diminishing marginal product of labor. . increasing returns to scale. decreasing returns to scale. re 91059“? 204 PART 5 FIRM BEHAVFOR AND THE ORGANFZATEON OF INDUSTRY 10. Which of the following is a variable cost in the short run? wages paid to factory labor b. payment on the lease for factory equipment (3. rent on the factory d. interest payments on borrOWed financial capital e. salaries paid to upper management Use the following infOrrnation to answer questions 1] through 1.4. Quantity Fixed Variable Total Marginal of Output Costs Costs _ Eggts__ __________C_1£§:cg.__l 0 $10 $0 ..__H__ 1 10 5 _____ 2 10 11 WI " 3 1 0 'l 8 __w__ _ 4 10 26 _ _ - i 5 10 36 —__ 171. The average fixed cost producing four units is a. $26. . b. $10. :2. $5. (3?) $2.50. e7 none of the above. I 12. The average total cost of producing three units is a. $3.33. 13. The marginal cost of changing production from three units to Four units is a. $5. b. $6. c. $7. @ $8. e. $9. 14. The efficient scale of production is a. one unit. 13. two units. c. three units. four units. e. five units. 15. When marginal costs are below average total costs, a. average fixed costs are rising. average total costs are fa] ling. if average total costs are rising. (:1. average total costs are minimized. CHAPTER 13 THE COSTS OF PRODUCTION 205 16. If marginal costs equal average total costs, a. average total costs are rising. b. average total costs are falling. average total costs are minimized. . average total costs are maximized. 17. If, as the quantity produced increases, a production function first exhibits increas— ing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will {19. slope upward. he U—shaped. ' c. slope downward. d. be flat (horizontal). 18. In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience economies of scale. . constant returns to scale. c. diseconomies of scale. d. an increase in average total costs. 19. The efficient scale of production is the quantity of output that minimizes {"55 average total cost. ‘ marginal. cost. c. average fixed cost. d. average variable cost. 20. Which of the following statements is true? fa; All costs are fixed in the longr run. {‘13.} All costs are variable in the long run. c. All costs are fixed in the short run. (:1. All costs are variable in the short run. ADVANCED CRITICAL THINKING Your friend a large garden and grows fresh fruit and vegetables to be sold at a local “farmer’s market.” Your frie comments, “I hired a college student who was on summer vacation to help me this summer and my duction more than doubled. Next summer, I think I’ll hire two or maybe three helpers and my out-p should go up more than three- or fourfold." 1. lf all produc ' n processes eventually exhibit diminishing rginal product of the variable inpu could it be true that your friend hi a helper (doubled the labor) and more than oubled his production? W . . ...
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This note was uploaded on 10/22/2011 for the course ACCT 3551 taught by Professor Brown during the Spring '11 term at UNC.

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ECO 251 Ch.13 Document - 202 PARTS FiR " .EHAVIOR AND...

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