Question 1

Why does the vertical distance between the ATC curve and the AVC curve decrease as output increases?

Accepted Answer

The answer of Why does the vertical distance between the...

Question 2

The period of time when a firm is able to change all of its inputs,or factors of production,is called the

Accepted Answer

The long run is the period of time when a firm can change all of its inputs, including factory size, technology, and labor. In contrast, the short run is a period of time when at least one input is fixed, and the firm cannot easily adjust its production. Therefore, option D is the best choice.

Question 3

What is the relationship between marginal cost and fixed cost?

Accepted Answer

The answer of What is the relationship between marginal cost...

Question 4

The increase in total cost that results from producing one more unit of output is the fixed cost.

Accepted Answer

The increase in the total cost that results from producing one more unit of output is the marginal cost, not the fixed cost. Fixed costs refer to costs that do not vary with the level of production, such as rent or salaries.

Question 5

Recall the Application about the marginal cost involved in producing crude oil to answer the following question(s).
-Recall the Application.As the volume of crude oil increases,the marginal cost of production initially increases at a ________ rate and then eventually increases at a ________ rate.

Accepted Answer

The marginal cost of producing crude oil initially increases at a moderate rate due to economies of scale and other factors. As production continues to increase, the marginal cost eventually increases at a much faster rate due to factors such as the depletion of easier-to-access resources, requiring more expensive extraction methods.

Question 6

Whenever the marginal cost is less than the average cost,the average cost is falling.

Accepted Answer

This statement is true. When the marginal cost is less than the average cost, it means that each additional unit produced is adding less to the average cost than the previous unit, causing the average cost to decrease.

Question 7

The long run is when at least one cost is fixed.

Accepted Answer

In the long run, all costs are variable, and firms can adjust all inputs.

Question 8

The gap between average total cost and the average variable cost is always the average fixed cost.

Accepted Answer

This is a basic relationship in cost theory known as the "cost decomposition identity." It follows from the fact that total cost = fixed cost + variable cost, and the average of a sum is equal to the sum of the averages. Therefore, average variable cost = (variable cost / quantity produced) and average total cost = (total cost / quantity produced), so:

average variable cost + average fixed cost = (variable cost / quantity produced) + (fixed cost / quantity produced)
average total cost = (total cost / quantity produced) = (variable cost + fixed cost) / quantity produced

Substituting the first equation into the second, we get:

average total cost = average variable cost + average fixed cost

Therefore, the difference between average total cost and average variable cost must be equal to the average fixed cost.

Question 9

Describe the relationship between marginal cost and average cost.

Accepted Answer

The answer of Describe the relationship between marginal cost and...

Question 10

Recall the Application about the marginal cost involved in producing crude oil to answer the following question(s).
-Recall the Application.For which of the following is the marginal cost of extracting oil the lowest?

Accepted Answer

The marginal cost of extracting oil is typically lowest in regions where the oil is easily accessible and the extraction technology is well established. Russia has vast reserves of conventional oil that are relatively inexpensive to exploit compared to the more challenging environments of the North Sea, the Arctic, or the oil sands in Canada, where extraction requires more complex and costly technologies.

Question 11

Table 8.6
-Refer to Table 8.6.For each level of output,compute average variable cost,marginal cost,average fixed cost,and average total cost.

Accepted Answer

The answer of  
Table 8.6
-Refer to Table 8.6.For each...

Question 12

Table 8.7
-Complete Table 8.7.

Accepted Answer

The answer of  
Table 8.7
-Complete Table 8.7....

Question 13

One of the main differences between the long run and the short run is that

Accepted Answer

In the short run, at least one factor of production, such as labor or capital, is fixed. This means that there will be diminishing marginal returns as the fixed factor becomes increasingly overused. However, in the long run, all factors of production are variable, so there are no fixed inputs and no diminishing returns. This allows for greater flexibility and a wider range of production possibilities for firms. The ability to earn profits or operate at a loss is not the defining difference between the two time periods.

Question 14

If a firm is operating in the long run,the firm has flexibility in

Accepted Answer

In the long run, a firm can adjust all inputs, build a new production facility, or modify an existing facility, giving it the flexibility to make strategic decisions that will impact its future production and profitability. Therefore, option D is the correct answer.

Question 15

When XYZ Corporation produces 35 units of output,its average variable cost is $5.The marginal cost of the 36th unit of output is $7.If the firm choose to produce the 36th unit of output,what will happen to average variable cost? Explain.

Accepted Answer

The answer of When XYZ Corporation produces 35 units of...

Question 16

Decreasing marginal product implies decreasing marginal costs.

Accepted Answer

Decreasing marginal product means that each additional unit of input produces less output than the previous unit, which leads to an increase in marginal costs (the additional cost of producing each additional unit of output). Therefore, decreasing marginal product implies increasing marginal costs rather than decreasing.

Question 17

The law of diminishing returns applies only in the long run when the fixed cost can be flexible.

Accepted Answer

The law of diminishing returns applies to both the short and long run, and it is related to the variable input in production, not the fixed cost. Additionally, fixed costs are typically not flexible in the short run as they are determined by the level of output decided upon in the planning stage.

Question 18

Average fixed costs rise continuously as the quantity of output rises.

Accepted Answer

Average fixed costs are constant in the short run, as fixed costs do not change with the level of output. Therefore, as output is increased, fixed costs are spread over a larger quantity of output, causing average fixed costs to fall.

Question 19

Explain why a firm's short-run marginal cost curve initially decreases and then increases in most cases.

Accepted Answer

The answer of Explain why a firm's short-run marginal cost...

Question 20

Comment on the following statement: "In the short run,a firm's total costs will be zero if the firm chooses to produce nothing."

Accepted Answer

The answer of Comment on the following statement: "In the...

Quiz 8: Production Technology and Cost

Why does the vertical distance between the ATC curve and the AVC curve decrease as output increases?

The period of time when a firm is able to change all of its inputs,or factors of production,is called the

What is the relationship between marginal cost and fixed cost?

The increase in total cost that results from producing one more unit of output is the fixed cost.

Recall the Application about the marginal cost involved in producing crude oil to answer the following question(s) . -Recall the Application.As the volume of crude oil increases,the marginal cost of production initially increases at a rate and then eventually increases at a rate.

Whenever the marginal cost is less than the average cost,the average cost is falling.

The long run is when at least one cost is fixed.

The gap between average total cost and the average variable cost is always the average fixed cost.

Describe the relationship between marginal cost and average cost.

Recall the Application about the marginal cost involved in producing crude oil to answer the following question(s) . -Recall the Application.For which of the following is the marginal cost of extracting oil the lowest?

Table 8.6 -Refer to Table 8.6.For each level of output,compute average variable cost,marginal cost,average fixed cost,and average total cost.

Table 8.7 -Complete Table 8.7.

One of the main differences between the long run and the short run is that

If a firm is operating in the long run,the firm has flexibility in

When XYZ Corporation produces 35 units of output,its average variable cost is $5.The marginal cost of the 36th unit of output is $7.If the firm choose to produce the 36th unit of output,what will happen to average variable cost? Explain.

Decreasing marginal product implies decreasing marginal costs.

The law of diminishing returns applies only in the long run when the fixed cost can be flexible.

Average fixed costs rise continuously as the quantity of output rises.

Explain why a firm's short-run marginal cost curve initially decreases and then increases in most cases.

Comment on the following statement: "In the short run,a firm's total costs will be zero if the firm chooses to produce nothing."

Quiz 8: Production Technology and Cost

Why does the vertical distance between the ATC curve and the AVC curve decrease as output increases?

The period of time when a firm is able to change all of its inputs,or factors of production,is called the

What is the relationship between marginal cost and fixed cost?

The increase in total cost that results from producing one more unit of output is the fixed cost.

Recall the Application about the marginal cost involved in producing crude oil to answer the following question(s) . -Recall the Application.As the volume of crude oil increases,the marginal cost of production initially increases at a ________ rate and then eventually increases at a ________ rate.

Whenever the marginal cost is less than the average cost,the average cost is falling.

The long run is when at least one cost is fixed.

The gap between average total cost and the average variable cost is always the average fixed cost.

Describe the relationship between marginal cost and average cost.

Recall the Application about the marginal cost involved in producing crude oil to answer the following question(s) . -Recall the Application.For which of the following is the marginal cost of extracting oil the lowest?

Table 8.6 -Refer to Table 8.6.For each level of output,compute average variable cost,marginal cost,average fixed cost,and average total cost.

Table 8.7 -Complete Table 8.7.

One of the main differences between the long run and the short run is that

If a firm is operating in the long run,the firm has flexibility in

When XYZ Corporation produces 35 units of output,its average variable cost is $5.The marginal cost of the 36th unit of output is $7.If the firm choose to produce the 36th unit of output,what will happen to average variable cost? Explain.

Decreasing marginal product implies decreasing marginal costs.

The law of diminishing returns applies only in the long run when the fixed cost can be flexible.

Average fixed costs rise continuously as the quantity of output rises.

Explain why a firm's short-run marginal cost curve initially decreases and then increases in most cases.

Comment on the following statement: "In the short run,a firm's total costs will be zero if the firm chooses to produce nothing."

Recall the Application about the marginal cost involved in producing crude oil to answer the following question(s) . -Recall the Application.As the volume of crude oil increases,the marginal cost of production initially increases at a rate and then eventually increases at a rate.