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Exam 13: The Costs of Production

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Question 101

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Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?

A) $4
B) $10
C) $40
D) $135

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Question 102

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Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130) . Then the marginal product of the 13th worker is

A) 8 units of output.
B) 10 units of output.
C) 122 units of output.
D) 132 units of output.

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Question 103

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For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

When a factory is operating in the short run,

Average variable cost is equal to total variable cost divided by quantity of output.

If the average-total-cost of producing five units is $10, and the marginal-cost of producing the fifth unit is $10, then the average-total-cost curve is at its minimum at five units.​

Which of the following explains why long-run average total cost at first decreases as output increases?

Figure 13-6 The following figure depicts average total cost functions for a firm that produces automobiles. ​ ​ ​ -Refer to Figure 13-6. At levels of output less than P, the firm experiences

Diminishing marginal productivity implies decreasing total product.

A second or third worker may have a higher marginal product than the first worker in certain circumstances.

Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.

Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the shape of the average-fixed-cost curve?

-Refer to Table 13-12. Which firm has constant returns to scale over the entire range of output?

Figure 13-6 The following figure depicts average total cost functions for a firm that produces automobiles. ​ ​ ​ -Refer to Figure 13-6. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

Economists include both explicit and implicit costs while accountants include only implicit costs. ​

Table 13-15 $\begin{array} { | l | l | l | l | l | } \hline \text { Labor } & \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { l } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { l } \text { Fixed } \\\text { Cost }\end{array} \\\hline 0 & 0 & - & \$ 0 & \$ 5 \\\hline 1 & 100 & 100 & \$ 5 & \$ 5 \\\hline 2 & 250 & & \$ 10 & \$ 5 \\\hline 3 & 350 & & \$ 15 & \$ 5 \\\hline 4 & & 50 & \$ 20 & \$ 5 \\\hline 5 & & 25 & \$ 25 & \$ 5 \\\hline 6 & 430 & & \$ 30 & \$ 5 \\\hline\end{array}$ -Refer to Table 13-15. What is the average variable cost of producing 400 units of output?

The opportunity cost of capital is an implicit cost almost every business incurs.

Table 13-11 ​ ​ ​ -Refer to Table 13-11. Which firm is experiencing diseconomies of scale?

Table 13-13 Listed in the table are the long-run total costs for three different firms. $\begin{array} { | l | l | l | l | l | l | } \hline \text { uantity } & \mathbf { 2 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \\\hline \text { Firm A } & 100 & 100 & 100 & 100 & 100 \\\hline \text { Firm B } & 100 & 200 & 300 & 400 & 500 \\\hline \text { Firm C } & 100 & 300 & 600 & 1,000 & 1,500 \\\hline\end{array}$ -Refer to Table 13-13. Firm A is experiencing economies of scale.

The graph of the production function plots total cost versus quantity of output.