20-1. Which of the following are factors of production? Output in a production function Productivity → Land, labor, capital, and entrepreneurship Implicit and explicit costs | 20-2. The period in which at least one input is fixed in quantity is the: Long run. Production run. → Short run. Investment decision. | 20-3. The change in total output associated with one additional unit of input is the: Opportunity cost of the output. Average productivity. → Marginal physical product. Marginal cost. | 20-4. If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire: Enough workers to produce the output where diminishing returns begin. Enough workers to produce the output where worker productivity is the highest. → Enough workers to produce where the MPP equals zero. All the workers that can fit into the factory. | 20-5. Ceteris paribus, the law of diminishing returns states that beyond some point, the: Returns on stocks and bonds diminish with higher security prices. Addition to total utility diminishes as more units of a good are consumed. → Marginal physical product of a factor of production diminishes as more of that factor is used. Output of any good increases as more of a variable input is used. | 20-6. Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run? → In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs. The MPP does not change in the long run. In the long run, firms have enough time to find the most qualified workers. All factors of production are fixed in the long run. | 20-7. The most desirable rate of output for a firm is the output that: Minimizes total costs. → Maximizes total profit. Minimizes marginal costs. Maximizes total revenue. | 20-8. The shape of the marginal cost curve reflects the: → Law of diminishing returns. Competitiveness of the firm. Law of diminishing marginal utility. Law of demand. | 20-9. If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is: $0.75. → $1.33. $30.00. $300.00. | 20-10. If marginal physical product (MPP) is falling, then the: Marginal cost of each unit of output is falling. → Marginal cost of each unit of output is rising. Total cost of each unit of output is falling. Total cost of each unit of output is rising. | 20-2. The short run is the period in which the quantity (and quality) of some inputs can't be changed, or in other words inputs are fixed. | 20-1. Factors of production are resources used to produce goods and services, such as land, labor, capital, and entrepreneurship. | 20-4. Marginal physical product (MPP) is the change in total output that results from employing one more unit of input. As long as MPP is positive, a firm can add to its total output by employing the worker. | 20-3. The marginal physical product (MPP) is the change in total output associated with one additional unit of input. | 20-6. The problems of crowded facilities apply to most production processes in the short run because of fixed resources. In the long run, all resources can be changed. | 20-5. The law of diminishing returns says that the marginal physical product of a variable input declines as more of it is employed along with a constant quantity of other (fixed) inputs. | 20-8. Whenever marginal physical product is increasing, the marginal cost of producing a good must be falling and so the marginal cost curve will be downward-sloping. At the point of diminishing marginal returns, the marginal physical product declines and the marginal cost increases, so the marginal cost curve will be upward-sloping. | 20-7. The most desirable rate of output is the one that maximizes total profit—the difference between total revenue and total costs. | 20-10. At the point of diminishing marginal returns, the marginal physical product declines and the marginal cost increases. | 20-9. Marginal cost is the increase in total cost associated with a one-unit increase in production and can be found by dividing the change in total cost by the MPP. If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is 20/15 or $1.33 | 20-11. In the short run, when a firm produces zero output, total cost equals: Zero. Variable costs. → Fixed costs. Marginal costs. | 20-12. Which of the following is most likely a fixed cost? Raw materials cost Labor cost Energy cost → Property taxes | 20-13. Changes in short-run total costs result from changes in: → Variable costs. Fixed costs. Profit. The price elasticity of demand. | 20-14. In the short run, which of the following is most likely a variable cost? Contractual lease payments → Labor and raw materials costs Property taxes Interest payments on borrowed funds | 20-15. A U-shaped average total cost curve implies: First, diminishing returns, and then, increasing returns. → First, marginal cost below average total cost, and then marginal cost above average total cost. That total costs are at a minimum at the minimum of the average cost curve. A linear total cost curve. | 20-16. When the average total cost curve is rising, then the marginal cost curve will be: Below the average fixed cost curve. Falling with greater output. → Above the average total cost curve. Below the average total cost curve. | 20-17. Implicit costs: Include only payments to labor. Are the sum of actual monetary payments made for resources used to produce a good. Include the value of all resources used to produce a good. → Are the value of resources used to produce a good but for which no monetary payment is made. | 20-18. Accounting costs and economic costs differ because: → Economic costs include implicit costs and accounting costs do not. Accounting costs include implicit costs and economic costs do not. Economic costs include explicit costs and accounting costs do not. Accounting costs include explicit costs and economic costs do not. | 20-19. Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance, (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her. Dad says her cost is $25,000 and Mom says her cost is $16,600. → Dad says her cost is $31,000 and Mom says her cost is $47,600. | 20-20. In economics, the long run is considered to be: → The time period when all costs are variable. The time period when all costs are explicit. One year. More than two years. | 20-12. Property tax is an example of a fixed cost. Once you purchase land, you're obligated to pay for it, whether or not you use it. Labor, energy and raw material costs will vary with output. | 20-11. Fixed costs must be paid even if no output is produced. Variable costs start at zero therefore when a firm produces zero, total costs is equal to fixed costs. | 20-14. Variable costs are the costs of production that change when the rate of output is altered, for example labor or material costs. | 20-13. Total cost rises as output increases, because additional variable costs must be incurred. | 20-16. If the marginal cost is greater than the average total cost, the average total cost must be increasing. For instance, if you have a 3.5 GPA (grade point average) and get a 4.0 in your last (marginal) economics class, your GPA will rise. | 20-15. So long as the marginal cost of producing one more unit is less than the previous average cost, average costs must fall. Average total costs must increase whenever marginal costs exceed average costs. | 20-18. Accounting costs refer to the explicit dollar outlays made by a producer. Economic costs, in contrast, refer to the value of all costs, both explicit and implicit. | 20-17. Implicit costs are the value of resources used, even when no direct payment is made. | 20-20. The long run is a period of time long enough for all inputs to be varied (no fixed costs). | 20-19. Profit is equal to revenue minus costs. An accountant will only consider explicit costs where as an economists will consider economic costs which include explicit and implicit costs. | 20-21. Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of: Economies of scale. Diseconomies of scale. → Constant returns to scale. Diminishing returns. | 20-22. Diseconomies of scale are reflected in: The downward-sloping segment of the long-run average total cost curve. The downward-sloping segment of the long-run marginal cost curve. A downward shift of the long-run average total cost curve. → The upward-sloping segment of the long-run average total cost curve. | | 20-23. What is the marginal physical product of the second unit of labor in Table 20.1? → 20 17 35 5 | | 20-24. With which unit of labor do diminishing marginal returns first appear in Table 20.1? The first The second → The third The fourth | | 20-25. Average fixed cost at 20 units of output in Table 20.2 is: $1.00. → $2.00. $2.50. $4.00. 20-26. The marginal cost between 20 and 30 units of output in Table 20.2 is: $1.60. $4.00. → $1.80. $18.00. | 20-27. Above 10 units of output, the average fixed cost in Table 20.2: Rises above $2.00. Remains constant. Stays below $0.50. → Continues to decline. | | 20-22. When increasing the size (scale) of a plant reduces operating efficiency, the average total cost curve will increase. | 20-21. When there is no economic advantage to a large plant, because a large plant is no more efficient than a small plants, constant returns to scale exist. | 20-23. The marginal physical product is the difference in total output associated with one additional unit of input which is 20 (35 - 15). | | 20-24. The marginal physical product is 15, 20, 10, and 7 when you add each worker respectively, so diminishing marginal returns appear with the third worker as 20 is less than 10. | | 20-25. Average fixed cost is equal to fixed cost divided by quantity. Fixed cost of 40 (because total cost is 40 at 0 units of output) divided by 20 is equal to $2.00. 20-26. Marginal cost is equal to the change in total cost (80 - 62) divided by the change in quantity (30 - 20) which is $1.80. | | | 20-27. The numerator (fixed costs) is constant and the denominator (quantity) increases as output expands, therefore any increase in output will lower average fixed cost. | | 20-28. Total fixed costs in Table 20.5 are equal to: $0 because the problem involves the long run. → $15. $30. $60. | 20-29. The marginal cost of the third unit of output in Table 20.5 is: $4. → $3. $30. $15. | | 20-30. What is the marginal cost of the 120th unit of output in Figure 20.2? $1.20 $200.00 $208.00 → $288.00 20-31. What is the total fixed cost in Figure 20.2? $80 $10,000 → $9,600 $29,600 20-32. What is the total variable cost when output is 100 units in Figure 20.2? $9,600 $296 $200 → $20,000 | | | | 20-29. Marginal cost is equal to the change in total cost (30 - 27) divided by the change in quantity (3 - 2) which is $3. | 20-28. The total fixed cost is $15 at any unit of output because total cost is $15 at 0 units of output. | 20-30. According to the graph, marginal cost is equal to $288 at the quantity 120. 20-31. AFC can be found at any quantity of output by taking the difference between ATC and AVC. Once you have AFC, you can multiply it by quantity to get FC. For example, at the quantity of 120, AFC is equal to $80 (288 - 208) and FC is equal to $9600 ($80 × 120). 20-32. VC can be found by multiplying AVC by quantity at any output level. So at an output level of 100, VC is equal to $20,000 ($200 × 100). | | | | | 20-33. Refer to Figure 20.5. Economies of scale occur in the following range of factory sizes: #1 to #2. → #1 to #3. #3 only. #1 to #5. | | 20-34. Refer to Figure 20.5. Diseconomies of scale begin to occur: At the minimum points on all five ATC curves. → After the third factory. After the fourth factory. After the first factory. | | | | | | | 20-33. Reductions in minimum average costs that come about through increases in the size (scale) of plant and equipment occur over the range of plant sizes 1 through 3. | | 20-34. Increases in minimum average costs that come about through increases in the size (scale) of plant and equipment occur after the third factory. | | | | | | | | ards