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Exam 5: Production and Cost Analysis in the Short Run

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Question 1

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The term "fixed input" refers to:

A) inputs to production that do not vary with respect to quality.
B) inputs to production that do not vary in price.
C) inputs to production that yield a constant or "fixed" marginal product.
D) inputs to production, the quantity of which cannot be varied in the short run.

E) B) and C)
F) B) and D)

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Question 2

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-Refer to Scenario 3. The average total cost of 5 units of output is

A) $8.
B) $10.
C) $29.
D) $39.

E) C) and D)
F) A) and B)

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D

Question 3

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All else constant, an improvement in technology would cause a firm's total, average and marginal product functions to increase graphically, shift up).

Which of the following is an example of an "implicit cost"?

When demand for a firm's product decreases, the firm can take a number of steps to adjust costs and quantities supplied to the market. Some are listed below. Which actions are short run and which are long run? Explain your reasoning. a. Layoff 25 percent of the firm's existing employees. b. Declare bankruptcy and sell all of the firm's plant and equipment. c. Require management personnel to take a significant cut in pay. d. Furlough employees for 3 days each month. e. Move to a smaller production facility.

From the manager's perspective:

Which of the following statements is false?

Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm's manager?

After the former CEO of the Coca-Cola Company began requiring employees to treat the rate of return on shareholder equity as an explicit cost, Coke's profits increased considerably.

All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will:

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, economic profit will be overstated.

According to the text, much of the increase in productivity that has occurred more recently in the fast food industry was the result of improvements in capital and technology.

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, accounting profit will be understated.

Assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. Economists would classify this as:

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?

Scenario 1: The following is a hypothetical short-run production function: -Refer to Scenario 1. What is the average product of the first three hours of labor?

Explain how the value of marginal cost affects the values of average variable cost and average total cost and what this means for the relationship between the marginal cost curve and the average variable and total cost curves.

All else constant, an increase in productivity has the effect of causing:

Which of the following statements is true of the relationship among the average cost functions?

Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.