Chapter 7: Production and Cost in the Firm (Review)

Economists assume that the goal of a firm is to:

maximize total profit

Which of the following statements is true?

Firms that strive and thrive in an industry are those that are more profitable than other firms

A firm's _____ are its actual cash payments for resources.

explicit costs

Which of the following is an explicit cost?

The wages a firm pays to its workers

_____ costs represent a firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash

Implicit

Economic profit is defined as the difference between:

total revenue and total costs, both explicit and implicit

Economists define the short run as a time period in which:

at least one input is fixed.

Identify a statement that is true of the short run.

Output can be changed in the short run only by adjusting variable resources.

According to the law of diminishing marginal returns, as more of a variable input is combined with fixed amounts of other resources:

the additions to output will eventually decrease

Increasing marginal cost is associated with:

decreasing marginal product

Which of the following best describes marginal cost?

Change in total cost resulting from a one-unit change in output

When a firm experiences decreasing marginal returns:

the marginal cost of output increases

The rising marginal cost curve intersects:

the minimum point of both the average variable cost and average total cost curves.

If average variable cost is falling, we know that:

marginal cost is definitely less than average variable cost.

_____ are forces that cause a reduction in a firm's average cost as the scale of operation increases in the long run. _____ are forces that cause a firm's average cost to increase as the scale of operation increases in the long run.

Economies of scale; diseconomies of scale

A firm can experience diseconomies of scale due to:

a lack of coordination between different divisions of the firm

Diseconomies of scale result from _____, whereas, diminishing marginal returns result from _____.

a larger firm size; using more variable resources in a firm of a given size

Which of the following statements is true about the long run?

In the long run, for any output level, a firm can select a plant size that will allow it to minimize average total cost.

The cost curve that shows the lowest per unit cost of producing any given level of output is called:

the long-run average cost curve

If the long-run average cost of a firm increases as the size of the firm increases, then the firm is experiencing

diseconomies of scale