(Quiz 1 ) Week 4 - Firm’s Cost of Production

Questions and Answers

What is an example of technological change?

A firm invests in new machinery (correct)

A firm hires additional workers

A firm changes its pricing strategy

A firm increases its marketing budget

In the short run, a firm can adjust all of its inputs.

False

Define average total cost.

Total cost divided by the quantity of output produced.

The cost that remains constant regardless of the quantity of output produced is called ______.

fixed cost Signup and view all the answers

Which of the following describes variable costs?

Costs that change as the quantity of output changes Signup and view all the answers

Match the following terms with their definitions:

Explicit costs = Cost that involves spending money Implicit costs = Non-monetary opportunity cost Total cost = Sum of fixed and variable costs Opportunity cost = Highest-valued alternative forgone Signup and view all the answers

Marginal cost is the cost of producing one additional unit of output.

True Signup and view all the answers

What is the production function?

The relationship between the inputs employed by the firm and the maximum output it can produce. Signup and view all the answers

What does the marginal product of labour represent?

The additional output produced by hiring one more worker. Signup and view all the answers

The law of diminishing returns states that adding more workers will always increase marginal product.

False Signup and view all the answers

Define average product of labour.

Total output divided by the quantity of workers. Signup and view all the answers

The formula for marginal cost is MC = _____ / Q.

TC Signup and view all the answers

What happens to average fixed cost (AFC) as output increases?

AFC gets smaller as output increases. Signup and view all the answers

Match the following economic terms with their definitions:

Economies of scale = Long-run average costs decrease as production increases. Diseconomies of scale = Long-run average costs increase with higher production. Constant returns to scale = Long-run average costs remain unchanged with increased production. Minimum efficient scale = The lowest point of long-run average cost curve. Signup and view all the answers

The average total cost (ATC) is calculated by dividing total cost by output.

True Signup and view all the answers

What is the relationship between marginal cost and average total cost at their minimum points?

Marginal cost intersects average total cost at its minimum point. Signup and view all the answers

Which of the following correctly defines technology in an economic context?

Processes a firm uses to turn inputs into outputs of goods and services Signup and view all the answers

In the long run, all of a firm’s inputs are variable.

True Signup and view all the answers

What is the term for the highest-valued alternative that must be given up to engage in an activity?

opportunity cost Signup and view all the answers

The total cost of production can be calculated using the formula TC = _ + _ .

FC, VC Signup and view all the answers

Match the type of cost with its definition:

Explicit cost = A cost involving direct monetary outlay Implicit cost = A non-monetary opportunity cost Fixed cost = Cost that remains constant regardless of output Variable cost = Cost that changes with the level of output Signup and view all the answers

What is the relationship between marginal product of labour and average product of labour when marginal product is greater than average product?

The average product is rising. Signup and view all the answers

Describe the production function.

It is the relationship between the inputs employed by the firm and the maximum output it can produce. Signup and view all the answers

Marginal cost and average total cost are always the same.

False Signup and view all the answers

What happens to the marginal product of labor when adding more workers and assuming fixed capital beyond a certain point?

It begins to decline. Signup and view all the answers

Average total cost is calculated by dividing total cost by the average variable cost.

False Signup and view all the answers

What is the formula for calculating the average variable cost (AVC)?

AVC = VC / Q Signup and view all the answers

As output increases, average fixed cost (AFC) becomes ______.

smaller Signup and view all the answers

Match the following economic concepts with their descriptions:

Economies of scale = Long-run average costs decrease as production increases Diseconomies of scale = Long-run average costs increase as production increases Constant returns to scale = Long-run average costs remain unchanged Minimum efficient scale = The output level where all economies of scale are exhausted Signup and view all the answers

At the minimum point of the marginal cost curve, which of the following effects occurs?

Marginal cost equals average variable cost. Signup and view all the answers

A firm experiences economies of scale when its long-run average costs rise as it increases production.

False Signup and view all the answers

What is the relationship between average total cost and average variable cost as output increases?

The difference decreases. Signup and view all the answers

Study Notes

Technology in Economics

Technology refers to processes firms utilize to convert inputs into goods and services.
Technological change enhances a firm's ability to produce more output with existing input amounts.

Short Run vs. Long Run

Short Run: A timeframe where at least one input is fixed and cannot be changed.
Long Run: A sufficient period allowing full variations in all inputs, adoption of new technology, and adjustments to plant size.

Costs in Production

Total Cost (TC) consists of both fixed and variable costs (TC = FC + VC).
Fixed Costs (FC) remain constant regardless of production levels.
Variable Costs (VC) fluctuate with the quantity of output produced.

Implicit vs. Explicit Costs

Opportunity Cost represents the value of the next best alternative forgone.
Explicit Costs involve direct monetary expenditures.
Implicit Costs reflect non-monetary, opportunity costs.

Production Function

The production function links input quantities to the maximum achievable output.

Marginal Product of Labor (MPL) & Average Product of Labor (APL)

Marginal Product of Labor indicates the additional output from hiring one more worker.
The Law of Diminishing Returns asserts that adding more of a variable input, while holding fixed input constant, eventually leads to decreased marginal returns.
Average Product of Labor is calculated by dividing total output by the number of workers employed.

Marginal Cost (MC)

Marginal Cost signifies the change in total cost resulting from producing one more unit of output, calculated as MC = ΔTC/ΔQ.

Average Cost Curves

Average Total Cost (ATC) is calculated as total cost divided by output quantity (ATC = TC/Q).
Average Fixed Cost (AFC) and Average Variable Cost (AVC) represent fixed and variable costs per unit of output respectively.

Graphing Cost Curves

All cost curves (MC, ATC, AVC) are U-shaped.
The marginal cost curve intersects the AVC and ATC at their minimum points.
As output increases, AFC decreases, and the gap between ATC and AVC shrinks.

Long-Run Costs

The Long-Run Average Cost Curve shows the minimal cost of producing a given output level when no inputs are fixed.
Economies of Scale occur when long-run average costs decline with increased production.
Constant Returns to Scale maintain stable long-run average costs as output rises.
Minimum Efficient Scale denotes the output level where economies of scale are maximized.
Diseconomies of Scale lead to higher long-run average costs as production scales up.

Technology in Economics

Technology refers to processes firms utilize to convert inputs into goods and services.
Technological change enhances a firm's ability to produce more output with existing input amounts.

Short Run vs. Long Run

Short Run: A timeframe where at least one input is fixed and cannot be changed.
Long Run: A sufficient period allowing full variations in all inputs, adoption of new technology, and adjustments to plant size.

Costs in Production

Total Cost (TC) consists of both fixed and variable costs (TC = FC + VC).
Fixed Costs (FC) remain constant regardless of production levels.
Variable Costs (VC) fluctuate with the quantity of output produced.

Implicit vs. Explicit Costs

Opportunity Cost represents the value of the next best alternative forgone.
Explicit Costs involve direct monetary expenditures.
Implicit Costs reflect non-monetary, opportunity costs.

Production Function

The production function links input quantities to the maximum achievable output.

Marginal Product of Labor (MPL) & Average Product of Labor (APL)

Marginal Product of Labor indicates the additional output from hiring one more worker.
The Law of Diminishing Returns asserts that adding more of a variable input, while holding fixed input constant, eventually leads to decreased marginal returns.
Average Product of Labor is calculated by dividing total output by the number of workers employed.

Marginal Cost (MC)

Marginal Cost signifies the change in total cost resulting from producing one more unit of output, calculated as MC = ΔTC/ΔQ.

Average Cost Curves

Average Total Cost (ATC) is calculated as total cost divided by output quantity (ATC = TC/Q).
Average Fixed Cost (AFC) and Average Variable Cost (AVC) represent fixed and variable costs per unit of output respectively.

Graphing Cost Curves

All cost curves (MC, ATC, AVC) are U-shaped.
The marginal cost curve intersects the AVC and ATC at their minimum points.
As output increases, AFC decreases, and the gap between ATC and AVC shrinks.

Long-Run Costs

The Long-Run Average Cost Curve shows the minimal cost of producing a given output level when no inputs are fixed.
Economies of Scale occur when long-run average costs decline with increased production.
Constant Returns to Scale maintain stable long-run average costs as output rises.
Minimum Efficient Scale denotes the output level where economies of scale are maximized.
Diseconomies of Scale lead to higher long-run average costs as production scales up.

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Description

Test your knowledge on key concepts from Chapter 6 of Economics. This quiz covers topics such as technology, economic short and long runs, and the relationship between various types of costs and productivity. Perfect for reinforcing your understanding of these essential economic principles.

(Quiz 1 ) Week 4 - Firm’s Cost of Production

Questions and Answers

What is an example of technological change?

In the short run, a firm can adjust all of its inputs.

Define average total cost.

The cost that remains constant regardless of the quantity of output produced is called ______.

Which of the following describes variable costs?

Match the following terms with their definitions:

Marginal cost is the cost of producing one additional unit of output.

What is the production function?

What does the marginal product of labour represent?

The law of diminishing returns states that adding more workers will always increase marginal product.

Define average product of labour.

The formula for marginal cost is MC = _____ / Q.

What happens to average fixed cost (AFC) as output increases?

Match the following economic terms with their definitions:

The average total cost (ATC) is calculated by dividing total cost by output.

What is the relationship between marginal cost and average total cost at their minimum points?

Which of the following correctly defines technology in an economic context?

In the long run, all of a firm’s inputs are variable.

What is the term for the highest-valued alternative that must be given up to engage in an activity?

The total cost of production can be calculated using the formula TC = _____ + _____ .

Match the type of cost with its definition:

What is the relationship between marginal product of labour and average product of labour when marginal product is greater than average product?

Describe the production function.

Marginal cost and average total cost are always the same.

What happens to the marginal product of labor when adding more workers and assuming fixed capital beyond a certain point?

Average total cost is calculated by dividing total cost by the average variable cost.

What is the formula for calculating the average variable cost (AVC)?

As output increases, average fixed cost (AFC) becomes ______.

Match the following economic concepts with their descriptions:

At the minimum point of the marginal cost curve, which of the following effects occurs?

A firm experiences economies of scale when its long-run average costs rise as it increases production.

What is the relationship between average total cost and average variable cost as output increases?

Study Notes

Technology in Economics

Short Run vs. Long Run

Costs in Production

Implicit vs. Explicit Costs

Production Function

Marginal Product of Labor (MPL) & Average Product of Labor (APL)

Marginal Cost (MC)

Average Cost Curves

Graphing Cost Curves

Long-Run Costs

Technology in Economics

Short Run vs. Long Run

Costs in Production

Implicit vs. Explicit Costs

Production Function

Marginal Product of Labor (MPL) & Average Product of Labor (APL)

Marginal Cost (MC)

Average Cost Curves

Graphing Cost Curves

Long-Run Costs

Studying That Suits You

Description

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