Question 1

Minimum efficient scale refers to the

Accepted Answer

Minimum efficient scale refers to the lowest output level at which average total costs are minimized. At this output level, economies of scale have been fully exploited and any further increase in output would result in diseconomies of scale.

Question 2

Situation 21-3
Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000.
Refer to Situation 21-3. How many gizmos does Gizmos, Inc. produce?

Accepted Answer

The average total cost (ATC) is calculated as the total cost divided by the quantity produced. Given ATC is $22 and the fixed cost is $32,000, we can set up the equation: $22 = ($32,000 + $14Q) / Q. Solving for Q gives 4,000 gizmos.

Question 3

Situation 21-3
Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000.
Refer to Situation 21-3. What are the total costs?

Accepted Answer

The total cost is calculated by multiplying the average total cost by the number of units produced. Since the fixed cost is $32,000 and the average total cost is $22, we can calculate the number of units produced as $32,000 / ($22 - $14) = 4,000 units. Therefore, the total cost is 4,000 units * $22 = $88,000.

Question 4

Economies of scale refer to

Accepted Answer

Economies of scale refer to a decrease in the long-run average total cost of production as output increases. This occurs due to factors such as specialization, greater use of technology, and bulk purchasing, which allow a firm to produce more efficiently as it grows in size. Option A and D refer to the points where the short-run average total cost curve reaches its minimum and maximum points, respectively, and is not related to economies of scale. Option B describes the constant returns to scale portion of the long-run average total cost curve, where the cost per unit of output remains constant as the firm expands, and is also not related to economies of scale.

Question 5

Exhibit 21-9 Refer to Exhibit 21-9. Let MC₁ and ATC₁ represent the initial cost curves of a peanut butter producer. In which of the following cases is it most likely that the firm's curves will shift leftward to MC₂ and ATC₂?

Accepted Answer

The answer of Exhibit 21-9 ​

Refer to Exhibit 21-9. Let...

Question 6

Exhibit 21-8  Exhibit 21-8 shows how output varies with the only variable input used in its production. The table indicates that diminishing marginal returns set in with the hiring of which unit of labor?

Accepted Answer

Diminishing marginal returns set in when the marginal product of the variable input (in this case labor) decreases after a certain level of input. In this table, the marginal product of labor starts decreasing from the third unit of labor onwards, indicating that the third unit of labor is where diminishing marginal returns set in.

Question 7

Situation 21-2 Alejandro is one of the leading widget producers in the country. At his current level of production, his total costs amount to $5,000, total fixed costs are $2,000, and average total costs are $250.
Refer to Situation 21-2. How many widgets is Alejandro producing?

Accepted Answer

We can use the formula for average total cost:

ATC = Total Cost / Quantity

Plugging in the given values:

$250 = $5,000 / Quantity

Quantity = $5,000 / $250

Quantity = 20

Therefore, Alejandro is producing 20 widgets.

Question 8

Exhibit 21-7  Refer to Exhibit 21-7. The average total cost of producing 4 units of output is

Accepted Answer

The answer of Exhibit 21-7  Refer to Exhibit 21-7....

Question 9

Total costs are

Accepted Answer

Total costs include both fixed costs and variable costs. Therefore, the best choice is C, which is fixed costs plus variable costs.

Question 10

Exhibit 21-7  Refer to Exhibit 21-7. The total variable cost of producing 3 units is

Accepted Answer

The answer of Exhibit 21-7  Refer to Exhibit 21-7....

Question 11

John purchases a baseball card for $10 that turns out to be so rare that a collector offers to buy it from him for $2,000. Instead, John decides to give the card to his sister (an avid baseball-card collector)as a birthday present. The opportunity cost of John's generosity is

Accepted Answer

The opportunity cost of a decision is the value of the best alternative forgone. In this case, the best alternative was to sell the baseball card for $2,000. Therefore, the opportunity cost of John's decision to give the card to his sister is $2,000. The sunk cost of $10 (the purchase price) is irrelevant in this scenario, as it does not influence John's decision. Therefore, the correct answer is C.

Question 12

Exhibit 21-7  Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is

Accepted Answer

The answer of Exhibit 21-7  Refer to Exhibit 21-7....

Question 13

Situation 21-2
Alejandro is one of the leading widget producers in the country. At his current level of production, his total costs amount to $5,000, total fixed costs are $2,000, and average total costs are $250.
Refer to Situation 21-2. What are Alejandro's average variable costs at the present level of production?

Accepted Answer

Average total costs = total costs / level of production
$250 = $5,000 / level of production
Level of production = 20
Average variable costs = (total costs - total fixed costs) / level of production
Average variable costs = ($5,000 - $2,000) / 20 = $150

Question 14

Economies of scale, constant returns to scale and diseconomies of scale account for the shape of the __________ cost curve.

Accepted Answer

Economies of scale refer to the decrease in average total cost as output increases, constant returns to scale refer to a constant average total cost as output increases, and diseconomies of scale refer to an increase in average total cost as output increases. These concepts all relate to the long-run average total cost curve, as the firm has flexibility in choosing inputs and adjusting capital in the long run to achieve the most efficient level of production. Therefore, the shape of the long-run average total cost curve is affected by economies of scale, constant returns to scale, and diseconomies of scale.

Question 15

Exhibit 21-7  Refer to Exhibit 21-7. The marginal cost of producing the seventh unit of output is

Accepted Answer

The answer of Exhibit 21-7  Refer to Exhibit 21-7....

Question 16

Situation 21-2
Alejandro is one of the leading widget producers in the country. At his current level of production, his total costs amount to $5,000, total fixed costs are $2,000, and average total costs are $250.
Refer to Situation 21-2. What is Alejandro's marginal cost at the present level of production?

Accepted Answer

Marginal cost cannot be determined from the given information as it requires data on the change in total cost with a change in output, which is not provided.

Question 17

Situation 21-3
Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000.
Refer to Situation 21-3. What are the total variable costs?

Accepted Answer

Total variable cost = Average variable cost x Quantity produced
We do not know the quantity produced, but we can use the information given to find the difference between average total cost and average variable cost: 
Average fixed cost = Average total cost - Average variable cost 
$22 - $14 = $8 is the average fixed cost per unit. 
We can now use the information about the fixed input cost to find the quantity produced: 
Quantity produced = Total fixed input cost / Average fixed cost per unit 
Quantity produced = $32,000 / $8 = 4,000 units 
Total variable cost = Average variable cost x Quantity produced 
Total variable cost = $14 x 4,000 = $56,000

Question 18

What is the relationship between the average fixed cost (AFC)curve and the marginal cost (MC)curve?

Accepted Answer

The answer of What is the relationship between the average...

Question 19

Exhibit 21-8  Exhibit 21-8 shows how output varies with the only variable input used in its production. If the cost of a unit of labor is $500, what is the approximate marginal cost of the 185th unit of output?

Accepted Answer

The answer of Exhibit 21-8  Exhibit 21-8 shows how...

Question 20

Exhibit 21-8  Exhibit 21-8 shows how output varies with the only variable input used in its production. Marginal physical product of the fifth unit of labor is

Accepted Answer

The answer of Exhibit 21-8  Exhibit 21-8 shows how...

Quiz 8: Production and Costs

Minimum efficient scale refers to the

Situation 21-3 Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000. Refer to Situation 21-3. How many gizmos does Gizmos, Inc. produce?

Situation 21-3 Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000. Refer to Situation 21-3. What are the total costs?

Economies of scale refer to

Exhibit 21-9 Refer to Exhibit 21-9. Let MC₁ and ATC₁ represent the initial cost curves of a peanut butter producer. In which of the following cases is it most likely that the firm's curves will shift leftward to MC₂ and ATC₂?

Exhibit 21-8 Exhibit 21-8 shows how output varies with the only variable input used in its production. The table indicates that diminishing marginal returns set in with the hiring of which unit of labor?

Situation 21-2 Alejandro is one of the leading widget producers in the country. At his current level of production, his total costs amount to $5,000, total fixed costs are $2,000, and average total costs are $250. Refer to Situation 21-2. How many widgets is Alejandro producing?

Exhibit 21-7 Refer to Exhibit 21-7. The average total cost of producing 4 units of output is

Total costs are

Exhibit 21-7 Refer to Exhibit 21-7. The total variable cost of producing 3 units is

John purchases a baseball card for $10 that turns out to be so rare that a collector offers to buy it from him for $2,000. Instead, John decides to give the card to his sister (an avid baseball-card collector) as a birthday present. The opportunity cost of John's generosity is

Exhibit 21-7 Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is

Economies of scale, constant returns to scale and diseconomies of scale account for the shape of the __________ cost curve.

Exhibit 21-7 Refer to Exhibit 21-7. The marginal cost of producing the seventh unit of output is

Situation 21-3 Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000. Refer to Situation 21-3. What are the total variable costs?

What is the relationship between the average fixed cost (AFC) curve and the marginal cost (MC) curve?

Exhibit 21-8 Exhibit 21-8 shows how output varies with the only variable input used in its production. If the cost of a unit of labor is $500, what is the approximate marginal cost of the 185th unit of output?

Exhibit 21-8 Exhibit 21-8 shows how output varies with the only variable input used in its production. Marginal physical product of the fifth unit of labor is

Quiz 8: Production and Costs

Minimum efficient scale refers to the

Situation 21-3 Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000. Refer to Situation 21-3. How many gizmos does Gizmos, Inc. produce?

Situation 21-3 Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000. Refer to Situation 21-3. What are the total costs?

Economies of scale refer to

Exhibit 21-9 ​ Refer to Exhibit 21-9. Let MC1 and ATC1 represent the initial cost curves of a peanut butter producer. In which of the following cases is it most likely that the firm's curves will shift leftward to MC2 and ATC2?

Exhibit 21-8 Exhibit 21-8 shows how output varies with the only variable input used in its production. The table indicates that diminishing marginal returns set in with the hiring of which unit of labor?

Situation 21-2 Alejandro is one of the leading widget producers in the country. At his current level of production, his total costs amount to $5,000, total fixed costs are $2,000, and average total costs are $250. Refer to Situation 21-2. How many widgets is Alejandro producing?

Exhibit 21-7 Refer to Exhibit 21-7. The average total cost of producing 4 units of output is

Total costs are

Exhibit 21-7 Refer to Exhibit 21-7. The total variable cost of producing 3 units is

John purchases a baseball card for $10 that turns out to be so rare that a collector offers to buy it from him for $2,000. Instead, John decides to give the card to his sister (an avid baseball-card collector) as a birthday present. The opportunity cost of John's generosity is

Exhibit 21-7 Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is

Economies of scale, constant returns to scale and diseconomies of scale account for the shape of the __________ cost curve.

Exhibit 21-7 Refer to Exhibit 21-7. The marginal cost of producing the seventh unit of output is

Situation 21-3 Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000. Refer to Situation 21-3. What are the total variable costs?

What is the relationship between the average fixed cost (AFC) curve and the marginal cost (MC) curve?

Exhibit 21-8 Exhibit 21-8 shows how output varies with the only variable input used in its production. If the cost of a unit of labor is $500, what is the approximate marginal cost of the 185th unit of output?

Exhibit 21-8 Exhibit 21-8 shows how output varies with the only variable input used in its production. Marginal physical product of the fifth unit of labor is

Exhibit 21-9 Refer to Exhibit 21-9. Let MC₁ and ATC₁ represent the initial cost curves of a peanut butter producer. In which of the following cases is it most likely that the firm's curves will shift leftward to MC₂ and ATC₂?