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SHORT ANSWER1. Explain the difference between an implicit cost and an explicit cost, and how both costs relate to economic and accounting profits.
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Use the following graph to answer the following questions.If a firm experiences some gains from specialization as it expands its scale of production, and adds additional layers of management as it does so, assuming they have the same effect, we would expect its long-run average total cost curve to bea. downward sloping. b. upward sloping. c. horizontal.d. vertical.e. U-shaped.
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Use the following graph to answer the following questions.The long-run cost curve between points E and F illustratesa. efficient scale. b. diseconomies of scale. .c. economies of scale.d. diminishing marginal product.e. constant returns to scale
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When a firm is at its efficient scale of operation it produces the
a. maximum rate of output at which long-run average cost is at a minimum.
b. minimum rate of output at which long-run average cost is at a minimum.
c. maximum rate of output where we have lowest long-run marginal cost.
d. minimum rate of output where we have lowest long-run marginal cost.
e. minimum rate of output where we have highest long-run marginal cost.
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If a firm adds multiple layers of management as it increases its scale of production, thus adding to its costs, we would expect its long-run average cost curve to bea. downward sloping. b. horizontal. c. upward sloping.d. vertical.e. U-shaped.
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If a firm experiences gains from specialization as it increases its scale of production, we would expect its long-run average cost curve to bea. upward sloping. b. horizontal. c. downward sloping.d. vertical.e. U-shaped.
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Ting owns a diamond shop. Last year her average cost of selling a diamond was $900. If she expands the size of her store this year and sees her average cost decrease to $850, her long-run average total cost curve should bea. vertical. b. upward sloping. c. horizontal.d. downward sloping.e. U-shaped.
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Shawn owns a stroller store. Last year his average cost of selling a stroller was $1,000. If he expands the size of his store this year and sees his average cost increase to $1,050, his long-run average total cost curve should bea. horizontal. b. U-shaped. c. vertical.d. downward sloping.e. upward sloping.
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Hubert owns a scooter store. Last year his average cost of selling a scooter was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should bea. horizontal.b. upward sloping. c. vertical.d. downward sloping.e. U-shaped.
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Timothy owns a landscaping company. If he increases the size of his company and experiences constant returns to scale as a result, his long-run average total cost curve should bea. vertical. b. downward sloping. c. upward sloping.d. horizontal.e. U-shaped.
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Rebecca owns a fitness gym. If she increases the size of her fitness gym and experiences diseconomies of scale as a result, her long-run average total cost curve should bea. vertical. b. downward sloping. c. horizontal.d. upward sloping.e. U-shaped.
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Geoffrey owns a wedding dress store. If he increases the size of his store and experiences constant returns to scale as a result, his long-run average total cost curve should bea. vertical. b. upward sloping. c. horizontal.d. downward sloping.e. U-shaped.
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If a firm experiences diseconomies of scale, its long-run average cost curve isa. upward sloping. d.b. downward sloping. c. a vertical line.a horizontal line.e. U-shaped.
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If a firm experiences economies of scale, its long-run average cost curve isa. a horizontal line. b. downward sloping. c. a vertical line.d. upward sloping.e. U-shaped.
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When a firm grows larger, many additional layers of managers are sometimes added that do not actually produce any output. At the same time, the firm gains additional bargaining power over the prices it pays to its suppliers. If both of these factors have an equal effect, we would expect this firm to experiencea. diminishing marginal returns. b. diseconomies of scale. c. constant returns to scale.d. economies of scale.e. increasing marginal returns.
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Jamal owns a coffee roasting company. He buys raw coffee beans, roasts them, grinds them, and sells them to stores. He recently moved into a larger factory so that he can sell coffee to more stores. How would Jamal know if he is experiencing constant returns to scale from increasing the size of his factory?
a. His long-run average cost per pound of coffee remains the same.
b. His long-run total cost of roasting coffee remains the same.
c. His long-run total cost of roasting coffee decreases.
d. His long-run average cost per pound of coffee increases.
e. His long-run average cost per pound of coffee decreases.
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Rahim owns a candy factory. If he decided to expand the size of his factory so that he could make more candy, how would he know if he is experiencing constant returns to scale?
a. His long-run average cost of making each piece of candy remains unchanged.
b. His long-run total cost of making candy decreases.
c. His long-run average cost of making each piece of candy decreases.
d. His long-run total cost of making candy remains unchanged.
e. His long-run average cost of making each piece of candy increases.
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Joshua owns a suit store. He currently sells around 10,000 suits per year. If he increases the size of his store so that he can display and sell even more suits, and his long-run average total cost remains unchanged, we know that Joshua is experiencinga. diseconomies of scale. b. diminishing marginal product. c. increasing marginal product.d. constant returns to scale.e. economies of scale.
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When firms grow larger, they sometimes add many additional layers of managers between the top executives and the entry-level employees. Because these managers do not actually produce any output themselves, we expect more layers of management to lead toa. diminishing marginal returns. b. diseconomies of scale. c. economies of scale.d. constant returns to scale.e. increasing marginal returns.
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Matilda owns an office supply store. If she decided to expand the size of her store in order to sell more supplies, how would she know if she is experiencing diseconomies of scale?
a. Her total cost of selling supplies decreases.
b. Her average cost of selling supplies increases.
c. Her total cost of selling supplies remains unchanged.
d. Her average cost of selling supplies remains unchanged.
e. Her average cost of selling supplies decreases.
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Samantha owns a gas station. If she moves into a larger lot but finds that her average costs have increased in the long run, we know that Samantha is experiencinga. increasing marginal product. b. diminishing marginal product. c. diseconomies of scale.d. constant returns to scale.e. economies of scale.
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Which is the best example of diseconomies of scale?a. the local power company b. the pizza business c. the restaurant industryd. a parking garagee. a small family farm
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A firm is considering changing its plant size. It calculates the amount of output it would be able to produce and the total cost for various plant sizes, as shown in the accompanying table. If the firm is currently using plant size C, the firm is experiencing which of the following?Plant SizeQuantityTotal Cost ($)A 1 10B 10 80C 100 900D 200 2,000E 500 5,500F1,00015,000a. economies of scale b. diseconomies of scale c. constant returns to scaled. diminishing marginal producte. increasing marginal product
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If a firms long-run average total costs increase as it increases its scale of production, the firm is experiencing
a. economies of scale.
b. constant returns to scale.
c. increasing returns from specialization.
d. diminishing marginal product.
e. diseconomies of scale.
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When firms grow larger, they sometimes acquire more market power, meaning that they have greater ability to negotiate lower prices with their suppliers. This ability to negotiate lower prices with their suppliers leads toa. diseconomies of scale. b. diminishing marginal returns. c. economies of scale.d. constant returns to scale.e. increasing marginal returns.
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Use the following graph to answer the following questions.If the firm expanded its scale of production and found that its average costs did not change, which of the curves would reflect this situation?a. LRATC1 and LRATC2 b. LRATC3 c. LRATC2d. LRATC1e. LRATC1 and LRATC3
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Use the following graph to answer the following questions.A firm expands its scale of production and finds that its long-run average total cost curve looks like LRATC3. It might look this way because the firma. is able to pay its employees less.b. adds several additional layers of management, which increase its costs.c. is able to reduce its tax burden.d. is able to produce output more efficiently.e. is able to sell more output.
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Use the following graph to answer the following questions.Which of the curves depicts economies of scale?a. LRATC1 and LRATC3 b. LRATC2 c. LRATC2 and LRATC3d. LRATC1e. LRATC3
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Which is the best example of economies of scale?a. the local power company b. the pizza business c. the restaurant industryd. a parking garagee. a small family farm
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Josephina owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Josephina know if she is experiencing economies of scale from increasing the size of her boxing gym?
a. Her average cost per client increases.
b. Her total cost increases.
c. Her average cost per client remains the same.
d. Her average cost per client decreases.
e. Her total cost remains unchanged.
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Annabelle owns an Italian ice shop. If she decided to expand the size of her shop so that she could sell more Italian ices, how would she know if she is experiencing economies of scale in the long run?
a. Her long-run average cost of selling each Italian ice remains unchanged.
b. Her long-run average cost of selling each Italian ice decreases.
c. Her long-run average cost of selling each Italian ice increases.
d. Her long-run total cost of selling Italian ices increases.
e. Her long-run fixed cost of selling Italian ices increases.
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Lukas owns a bookstore. He currently sells 1,200 books per year. If he doubles the size of his store so he can sell 2,400 books per year and his long-run average total cost per book decreases, we know that Lukas is experiencinga. diseconomies of scale. b. diminishing marginal product. c. increasing marginal product.d. economies of scale.e. constant returns to scale.
Q:
If a firms average total costs decrease as it increases its scale of production, the firm is experiencing
a. economies of scale.
b. diseconomies of scale.
c. increasing returns from specialization.
d. diminishing marginal product.
e. constant returns to scale.
Q:
Which of the following is a question that a firm must answer in the long run but not in the short run?
a. What is the profit-maximizing level of output?
b. How many workers should it hire?
c. What is the optimal amount of capital to employ?
d. What prices should it charge for its products?
e. How much should it pay its workers?
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The long-run average total costs for a firm are equal to short-run average total costs when
a. the long-run average total cost curve is declining.
b. the long-run average total cost curve is at a minimum point.
c. the long-run average total cost curve is increasing.
d. production is maximized.
e. production is at any point along the long-run average cost curve.
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Which of the following is an example of a long-run cost for a manufacturing firm?
a. the purchase of additional raw materials
b. hiring more employees
c. an increase in the size of its factory
d. paying higher tax rates
e. increasing the size of its management team
Q:
Refer to the following table. What is the average variable cost of producing three units of the good?OutputTotal Fixed CostTotal Variable CostTotal CostAverage Fixed CostAverage Variable CostAverage Total CostMarginal Cost1u2014u2014u2014u2014u2014u2014u20142u2014u2014$600u2014u2014u2014u20143u2014u2014u2014u2014?????u2014$204u2014$440u2014u2014u2014u2014u20145$500u2014u2014u2014u2014u2014u2014 a. $80 b. $120 c. $140d. $20e. $420
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Refer to the following table. What is the total cost of producing five units of the good? OutputTotal Fixed CostTotal Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost1$500$200u2014u2014u2014u2014u20142u2014u2014$800u2014u2014u2014u20143u2014u2014$875u2014u2014u2014$254u2014u2014$925u2014u2014u2014u20145u2014u2014????$100u2014u2014u20146u2014$450u2014u2014u2014u2014u2014a. $1,050 b. $950 c. $1,025d. $825e. $1,000
Q:
How will a firm know if it has grown too large, that is, when it has exceeded its minimum efficient scale of production?
a. Its long-run average costs begin to decrease.
b. Its long-run average costs begin to increase.
c. Its market power begins to diminish.
d. The number of other firms in the market rises.
e. All of its workers quit and go to work for the competition.
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It is important for a firm to know its minimum efficient scale of production because that is where
a. it faces the least amount of competition.
b. its tax burden will be lowest.
c. long-run costs are minimized.
d. long-run average total cost is greatest.
e. it turns into a monopoly.
Q:
Where would we find a firms minimum efficient scale of production?
a. at the lowest point on its long-run average total cost curve
b. at the highest point on its long-run average total cost curve
c. in the middle of its long-run average total cost curve
d. at the highest point on its long-run average fixed cost curve
e. in the middle of its long-run average variable cost curve
Q:
Should a firm always produce the level of output where marginal cost is lowest?
a. Yes. That is the level of output where costs are lowest.
b. No. That is the level of output where employees are most efficient.
c. No. Firms should produce where marginal cost equals average variable cost.
d. No. That might be the best choice, but it depends on the firms profits.
e. Yes. Any other level of output will have higher marginal cost.
Q:
Pablo owns a record store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Pablo sold 1,200 records. If Pablo sells 1,250 records this year (50 more than last year) and his average total cost increases to $1.28 million, we know that the
a. average total cost of selling 1,250 records is $1,000.
b. average variable cost of selling records has decreased.
c. average fixed cost of selling records is unchanged.
d. marginal cost of those 50 records is $80,000.
e. marginal cost of those 50 records is $1.28 million.
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If a firm experiences productivity gains from employee specialization, its marginal costa. increases at an increasing rate. b. decreases at an increasing rate. c. decreases at a decreasing rate.d. decreases at a constant rate.e. increases at a decreasing rate.
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If a firm experiences diminishing marginal product of labor, its marginal costa. increases at an increasing rate. b. decreases at a decreasing rate. c. increases at a constant rate.d. decreases at a constant rate.e. increases at a decreasing rate.
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If the marginal product of labor is increasing, the marginal cost of output must bea. decreasing. b. constant. c. equal to average total cost.d. unchanged.e. increasing.
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The change in total cost given a change in output is also known as ________ cost.a. differential b. marginal c. averaged. short-rune. long-run
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When the average variable cost curve is upward sloping, what must be true about the marginal cost curve?
a. It is U-shaped.
b. It is above the average variable cost curve.
c. It is upward sloping.
d. It is below the average variable cost curve.
e. It is a straight line.
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If the marginal cost curve is U-shaped
a. there are no productivity gains from specialization, only diminishing marginal product.
b. average fixed costs are continually decreasing.
c. there are productivity gains from specialization before diminishing marginal product sets in.
d. the average total cost curve is continually upward sloping.
e. the average variable cost curve is a straight line.
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When the average total cost curve is downward sloping, what must be true about the marginal cost curve?
a. It is U-shaped.
b. It is a straight line.
c. It is upward sloping.
d. It is below the average total cost curve.
e. It is above the average total cost curve.
Q:
The full set of short-run cost curves for a firm tells us
a. the profit-maximizing level of output.
b. the cost-minimizing level of output.
c. how many other firms are competing with that firm.
d. how many employees the firm has hired.
e. whether the firm will experience economies of scale.
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By looking at the full set of short-run cost curves for a firm, we can determine
a. the profit-maximizing level of output.
b. the optimal number of employees to hire.
c. what will happen if the firm increases its capital.
d. the level of output with the cost-minimizing level of output.
e. what will happen if the firm decreases its capital.
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A firms short-run cost curves show us
a. the lowest-cost level of output.
b. the highest-profit level of output.
c. what will happen if the firm doubles its capital.
d. how many other firms are in the industry.
e. how many employees the firm has.
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When the average total cost curve is at its minimum, we know that the
a. average variable cost curve intersects the average total cost curve.
b. average variable cost curve is above the average total cost curve.
c. marginal cost curve intersects the average total cost curve.
d. marginal cost curve is above the average total cost curve.
e. average fixed cost curve is above the marginal cost curve.
Q:
Use the following scenario to answer the following questions:Kareem owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Kareem sold 1,200 bikes.In the short run, average total costs at first decrease and then increase as more output is produced becausea. marginal cost is at first greater than average total costs, then falls below it.b. average fixed costs continually decrease.c. average variable costs at first decrease and then increase at the same level of output.d. total cost continually increases.e. marginal cost is at first less than average total costs, then rises above it.
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In the short run, average total costs and average variable costs converge as output increases because
a. marginal cost is below average total cost.
b. marginal cost is below average fixed cost.
c. average fixed costs continually increase.
d. average fixed costs continually decrease.
e. total cost continually increases.
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Which of the following is the best example of a variable cost in the short run?a. rent for an office b. rent for a restaurant c. wages for employeesd. debt payments for a loane. rent for factory space
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Vanessa owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs area. $550,000. b. $205,000. c. $345,000.d. $755,000.e. $108,000.
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Juan owns an antique shop. His total costs are $1.2 million per year, and his fixed costs are $450,000 per year. This means that his variable costs area. $1.2 million. b. $750,000. c. $450,000.d. $300,000.e. $1.65 million.
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Ingrid owns a lamp store. Her total costs are $225,000 per year, and her fixed costs are $150,000 per year. This means that her variable costs area. $150,000. b. $225,000. c. $375,000.d. $50,000.e. $75,000.
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Igor owns a movie theater. His total costs are $150,000 per year, and his fixed costs are $65,000. This means that his variable costs area. $65,000. b. $150,000. c. $85,000.d. $235,000.e. $70,000.
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When output is 100 units, the firms total fixed cost is $500. What will this firms total fixed cost be if output doubles to 200 units?a. $250 b. $500 c. $750d. $1,000e. $125
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Selene owns a craft store. Her total costs are $1.2 million per year, and her variable costs are $750,000 per year. This means that her fixed costs area. $1.2 million. b. $750,000. c. $450,000.d. $300,000.e. $1.95 million.
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Ralph owns a pool store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs area. $75,000. b. $225,000. c. $300,000.d. $50,000.e. $150,000.
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Lisette owns a bakery. Her total costs are $150,000 per year, and her variable costs are $85,000. This means that her fixed costs area. $65,000. b. $150,000. c. $85,000.d. $235,000.e. $70,000.
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Which of the following costs is fixed in the short run?a. wages b. utilities c. capitald. raw materialse. office supplies
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Which of the following can we learn by looking at a firms short-run costs?
a. the profit-maximizing level of output
b. whether the firm will experience economies of scale
c. the optimal number of employees to hire
d. whether the firm is earning economic profit
e. the cost-minimizing level of output
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Economists assume that the cost of ________ is fixed in the short run.a. labor b. capital c. raw materialsd. legal expensese. repairs
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In the short run, the cost of ________ is variable, whereas the cost of ________ is fixed.a. capital; labor b. electricity; wages c. capital; raw materialsd. labor; capitale. raw materials; labor
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Refer to the accompanying graph to answer the following questions.The average total cost (ATC) and average variable cost (AVC) converge as the level of output produced increases becausea. the firm is able to purchase more capital and exploit economies of scale.b. the firm experiences gains in productivity from employee specialization.c. average total cost decreases as output increases.d. average fixed cost decreases as output increases.e. the firm is able to drive its competitors out of business by lowering its price.
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Refer to the accompanying graph to answer the following questions.The gap between the average total cost (ATC) and average variable cost (AVC) curves represents ________ cost.a. average fixed b. total fixed c. average variabled. average totale. total variable
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Refer to the accompanying graph to answer the following questions.The firm is experiencing diminishing marginal product beyond what level of output along the marginal cost curve?a. Q5 b. Q1 c. Q2d. Q3e. Q4