Topic 9 : Production theory and cost of production

Cost concepts

• Implicit cost

• Explicit cost

• Social cost

• Production cost

• Fixed cost

The amount of money that a firm pays to buy inputs is called

• Total cost

• Variable cost

• Marginal cost

• Fixed cost

Explicit costs

• Require an outlay of money by the firm

• Include all of the firm's opportunity costs

• Include income that is forgone by the firm's owner

Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic

• In the short run, but not in the long run

• In the long run, but not in the short run

• Both in the short run and in the long run

• Neither in the short run nor in the long run

If a firm produces nothing, which of the following costs will be zero?

• Total cost

• Fixed cost

• Opportunity cost

• Variable cost

Suppose that a given firm experiences decreasing marginal product of labour with the addition of each worker regardless of the current output level.

Marginal cost will be

• Rising at all points

• Falling at all points

• U-shaped

• Constant

The efficient scale of the firm is the quantity of output that

• Maximizes marginal product

• Maximizes profit

• Minimizes average total cost

• Minimizes average variable cost

Which of the following must always be true as the quantity of output increases

• Marginal cost decline

• Average total cost must rise

• Average variable cost must rise

• Average fixed cost must fall

This firm experiences diseconomies of scale at what output levels?

• Output levels above N

• Output levels between M and N

• Output levels below M

The average fixed cost curve

• Always declines with increased levels of output

• Always rises with increased levels of output

• Always rise parallel to marginal cost

• Declines and rise at certain level of output