The basic difference between the short run and the long run is that

at least one resource is fixed in the short run, while all resources are variable in the long run.

all costs are fixed in the short run, but all costs are variable in the long run.

economies of scale may be present in the short run but not in the long run.

The short run is characterized by

plenty of time for firms to either enter or leave the industry.

increasing but not diminishing returns.

The long run is characterized by

the ability of the firm to change its plant size.

the relevance of the law of diminishing returns.

insufficient time for firms to enter or leave the industry.

the change in total output attributable to the employment of one more worker.

the change in total revenue attributable to the employment of one more worker.

the change in total cost attributable to the employment of one more worker.

total product divided by the number of workers employed.

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.

the demand for goods produced by purely competitive industries is downsloping.

beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.

Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.

Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.

may initially increase, then diminish, and ultimately become negative.

diminishes at all levels of production.

may initially increase, then diminish, but never become negative.

is always less than average product.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

marginal product of the third worker is 9.

the third worker has to work with poorer-quality tools and raw materials.

the firm will not want to hire more than three workers.

the first worker puts forth more effort than the second and third workers.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes

economies and diseconomies of scale.

the law of diminishing marginal utility.

The law of diminishing returns results in

a total product curve that eventually increases at a decreasing rate.

an eventually rising marginal product curve.

an eventually falling marginal cost curve.

a total product curve that rises indefinitely.

any cost that does not change when the firm changes its output.

the cost of producing one more unit of capital, for example, machinery.

average cost multiplied by the firm's output.

If you operated a small bakery, which of the following would be a variable cost in the short run?

baking supplies (flour, salt, etc.)

annual lease payment for use of the building

declines continually as output increases.

equals marginal cost when average total cost is at its minimum.

may be found for any output by adding average variable cost and average total cost.

equals both average variable cost and average total cost at their respective minimums.

is the difference between total cost and total variable cost.

rises for a time but then begins to decline when diminishing returns set in.

declines continuously as output increases.

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

Average fixed costs and average total costs would rise.

Marginal costs and average variable costs would both rise.

Average fixed costs and average variable costs would rise.

Average fixed costs would rise, but marginal costs would fall.

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

the changes in TC and TVC are equal.

no generalization about the changes in TC and TVC can be made.

the change in TC is greater than the change in TVC.

the change in TVC is greater than the change in TC.

Average fixed cost is _______.

T V C − M C TVC\ -\ MC T V C − M C

Average total cost is _______.

T F C + T V C Q \frac{TFC\ +\ TVC}{Q} Q T F C + T V C

T V C − M C TVC\ -\ MC T V C − M C

T V C − T F C Q \frac{TVC\ -\ TFC}{Q} Q T V C − T F C

Marginal cost is _______.

Δ i n T V C Δ i n Q \frac{\Delta\ in\ TVC}{\Delta\ in\ Q} Δ i n Q Δ i n T V C

Δ i n T V C Q \frac{\Delta\ in\ TVC}{Q} Q Δ i n T V C

P − Q Δ i n Q \frac{P\ -\ Q}{\Delta\ in\ Q} Δ i n Q P − Q

Δ i n T F C Δ i n Q \frac{\Delta\ in\ TFC}{\Delta\ in\ Q} Δ i n Q Δ i n T F C

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand

if a labor force in excess of Q 3 is employed.

if a labor force in excess of Q 1 is employed.

if a labor force in excess of Q 2 is employed.

only if the marginal product curve becomes negative at all levels of output.

Total fixed cost (TFC)

does not change as total output increases or decreases.

falls as the firm expands output from zero, but eventually rises.

falls continuously as total output expands.

varies directly with total output.

Average fixed costs for a given level of output can be determined graphically by

the vertical distance between ATC and AVC.

summing the marginal costs of any number of units of output and dividing the sum by that output.

the vertical distance between TC and TVC.

the vertical distance between AVC and MC.

The vertical distance between the total cost and the total variable cost curves differs by an amount that

initially increases, but then decreases, as output increases.

As output increases, total variable cost

increases at a decreasing rate and then at an increasing rate.

increases more rapidly than does total cost.

increases continuously at a decreasing rate.

Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased,

total cost at first increases at a decreasing rate and then increases at an increasing rate.

total variable cost at first increases at an increasing rate and then increases at a decreasing rate.

average total cost at first increases and then diminishes.

average fixed cost will rise beyond the point of diminishing returns.

If a technological advance increases a firm's labor productivity, we would expect its

average total cost curve to fall.

average total cost curve to rise.

average total cost curve to be unaffected.

rising, then average total cost could be either falling or rising.

falling, then average total cost must also be falling.

rising, then average total cost must also be rising.

falling, then average total cost could be either falling or rising.

The short-run average total cost curve is U-shaped because

of increasing and diminishing returns.

average fixed costs decline continuously as output increases.

of economies and diseconomies of scale.

minimum efficient scale is encountered.

Refer to the diagram. This firm's average fixed costs

are the vertical distance between AVC and ATC.

cannot be determined with the information in the diagram.

are the vertical distance between AVC and MC.

equal the per-unit change in MC.

Refer to the diagram. The profit-maximizing level of output for this firm

cannot be determined from the information given.

Economies and diseconomies of scale explain

why the firm's long-run average total cost curve is U-shaped.

the profit-maximizing level of production.

why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.

the distinction between fixed and variable costs.

variable costs equal fixed costs.

fixed costs are greater than variable costs.

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects

economies of scale, followed by diseconomies of scale.

increasing returns, followed by diminishing returns.

economies of scale, followed by diseconomies of scale.

increasing costs, followed by decreasing costs.

When diseconomies of scale occur,

the long-run average total cost curve rises.

the long-run average total cost curve falls.

marginal cost intersects average total cost.

Chapter 9

Authored by Jordyn Quirit

Business

University

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Economic cost can best be defined as

any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.

any contractual obligation to labor or material suppliers.

a payment that must be made to obtain and retain the services of a resource.

all costs exclusive of payments to fixed factors of production.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

payments of wages to its office workers

rent paid for the use of equipment owned by the Schultz Machinery Company

use of savings to pay operating expenses instead of generating interest income

economic profits resulting from current production

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

To the economist, total cost includes

explicit and implicit costs.

neither implicit nor explicit costs.

implicit, but not explicit, costs.

explicit, but not implicit, costs.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Accounting profits are typically

greater than economic profits because the former do not take explicit costs into account.

equal to economic profits because accounting costs include all opportunity costs.

smaller than economic profits because the former do not take implicit costs into account.

greater than economic profits because the former do not take implicit costs into account.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Economic profits are calculated by subtracting

explicit costs from total revenue.

implicit costs from total revenue.

implicit costs from normal profits.

explicit and implicit costs from total revenue.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

The basic characteristic of the short run is that

barriers to entry prevent new firms from entering the industry.

the firm does not have sufficient time to change the size of its plant.

the firm does not have sufficient time to cut its rate of output to zero.

a firm does not have sufficient time to change the amounts of any of the resources it employs.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

To economists, the main difference between the short run and the long run is that

the law of diminishing returns applies in the long run, but not in the short run.

in the long run all resources are variable, while in the short run at least one resource is fixed.

fixed costs are more important to decision making in the long run than they are in the short run.

in the short run all resources are fixed, while in the long run all resources are variable.

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