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ECON 1050 Lecture Notes - Marginal Cost, Production Function, Marginal Product

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School
University of Guelph
Department
Economics
Course
ECON 1050
Professor
Bryce Mc Bride

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Document Summary

Theories of firms - costs, revenues, and profits. Homework - chapter 13 q4r 4, p+a 1, 4, 5, 7. Total profits = total revenues - total costs. Costs can be understood in a few ways. Explicit costs - you actually had to pay money. Implicit costs - things invisible to an accountant (time, capital) Economic costs (total costs) = explicit + implicit costs. Short-run - when you have some costs for your business that you can"t change (fixed costs) Fixed costs + variable costs = total costs. Diminishing marginal product - extra workers add less and less to output and corresponds to more rapidly rising total costs. Marginal cost - the change in total costs from adding one more unit of output. Average cost - total cost divided by the quantity of output. Your lowest average cost is where average cost crosses your marginal costs. Production function - the relationship between the quantity of inputs (workers) and quantity of output.

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Related Questions

1. The Houston Chronicle reported that in Houston, the average price of new homes has decreased, while at the same time, the number of new homes sold has increased. This situation could be explained by which one of the following: (draw curves before answering)

  1. An Increase in demand
  2. An Increase in supply
  3. A Decrease in demand
  4. A Decrease in supply

2. In another market, the average price of new homes fell, while at the same time, the number of new homes sold decreased. The situation would best be explained by (Draw the curves before answering)

  1. An Increase in Demand
  2. An Increase in Supply
  3. A Decrease in demand
  4. A Decrease in supply

3. A consumer is said to have achieved maximum total utility when:

  1. Purchases of Good A give the same satisfaction as purchases of Good B.
  2. Purchases of the last dollar spent on Good A give the same satisfaction as purchases of the last dollar spent on Good B.
  3. The average purchases per dollar of Good A give the same satisfaction as the average purchases per dollar of Good B.
  4. The total utility derived from Good A is the same as the marginal utility derived from Good B.

4. You are given the following information about a firm's present output position: MPP (Marginal Physical Product) of Land = 12; MPP of Labor = 16; Price of Land = $2; Price of Labor = $4. With no additional money to spend, this firm should:

5. A firm achieves the least cost in production by substituting factors until

  1. their factor prices are equal
  2. their marginal products are equal to the factor prices
  3. their marginal products are each equal to zero
  4. the ratios of their marginal product equal the ratio of their prices
  5. none of the above

6.The economy is currently on its production possibilities frontier (PPF). A politician says that it is possible to get more of everything--more infrastructure, more schools, more national defense, more spending on social programs, and so on. The politician is

  1. correct if he is assuming a rightward-shifting PPF.
  2. incorrect if he is assuming a rightward-shifting PPF.
  3. correct if he is assuming a PPF that does not change.
  4. none of the above

7. Assume your swimsuit business is at its maximum profit position, and one new change occurs: consumer incomes decrease. If swimsuits are normal goods, the equilibrium price of swimsuits will __________, and the CONSUMER surplus will ________.

  1. increase, increase
  2. decrease, decrease
  3. increase, decrease
  4. decrease, increase

8. Firms that shuts-down in the short-run still must pay:

  1. Marginal cost
  2. Variable cost
  3. Fixed cost
  4. Total cost

9. The term externalities refer to:

  1. Black-market economic activity.
  2. The impact on markets of imported goods.
  3. The costs and benefits of a market activity borne by a third party.
  4. The inequitable distribution of income.

10. If full external costs are not internalized, firms will tend to allocate more of society's scarce resources to produce than is societally warranted, and if full external benefits are not internalized, firms will allocate less of society's resources to produce than is societally justified. True/False.

11. Joe was very careful about smoking in his home until he bought a fire insurance policy. After buying the policy, he became careless. His attitude is: "I'm insured. What do I care if this place burns down; I'll just collect the money". Joe's attitude is an example of ______________.

12. Megatrust Bank had historically scrutinized loans very carefully and extended them, only to persons whom they considered very creditworthy. They made relatively few loans. However, after the government provided guarantees to sub-prime loans, Megatrust relaxed its standards and increased its loan volume. (And its default rate as well.) This is an example of _______________.

13. In the short-run, if a perfectly competitive firm finds itself operating at a loss, it will

  1. Reduce the size of its plant to lower fixed costs.
  2. Raise the price of its product.
  3. Shut down.
  4. Continue to operate as long as it covers its variable cost.

14. If income today is more equally distributed than it was in 1960, a Lorenz Curve depicting today's distribution would be

  1. More bowed and to the left of the 1960's curve.
  2. More bowed and to the right of the 1960's curve.
  3. Less bowed and to the left of the 1960' curve.
  4. Less bowed and to the right of the 1960's curve.

15. Which of the following statements is true?

  1. As output increases, the average fixed cost becomes smaller and smaller.
  2. Average fixed cost does not change as output increases.
  3. The marginal cost curve intersects the average fixed cost curve at its minimum point.
  4. When marginal cost is greater than average fixed cost, average fixed cost increases.
  5.  

16. A firm in any of the market structures we have studied will maximize its profit (or minimizes its loss) when its

  1. Average costs are at a minimum
  2. Marginal revenue and marginal cost are the same.
  3. Marginal revenue is less than marginal cost.
  4. Marginal revenue is zero.

17. If the demand for a good increase, when the price of other good increases, these goods are

  1. Capital goods
  2. Substitute goods
  3. Complementary goods
  4. Luxury goods

18. Which of the following pairs of products are complementary goods?

  1. mobile phones and laptops
  2. pens and pencils
  3. sugar and artificial sweeteners
  4. radios and television
  5. toothbrushes and toothpaste

19. The amount of a good that is given up to produce another good is:

  1. Scarcity
  2. Specialization
  3. Opportunity cost
  4. Trade
  5. Efficiency

20. The most important characteristic of the equilibrium price is that it:

  1. Guarantees that producers earn a profit.
  2. Increases the quantity demanded.
  3. Clears the market.
  4. Decreases the quantity supplied.

21. Rank the following market structures based on the number of participating firms: From the fewest number of firms to the most number of firms:

  1. Oligopoly
  2. Perfect Competition
  3. Monopoly
  4. Monopolistic Competition

22. If firms in a monopolistically competitive market are earning economic profits which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

  1. an increase in demand
  2. a decrease in demand
  3. a downward shift in their marginal cost curve
  4. an upward shift in their marginal cost curve


23. If labor in Mexico is less productive than labor in the United States in all areas of production, 

  1. neither nation can benefit from trade
  2. Mexico can benefit from trade but the United States cannot
  3. Mexico will not have a comparative advantage in any good
  4. both nations can benefit from trade

24. Which of the following statements is false?

  1. The typical monopolistically competitive firm could reduce its average total cost if it produced more output.
  2. Monopolistically competitive firms advertise to increase the elasticity of the demand curve they face.
  3. Expensive advertising might help consumers if it is a signal that the product is good.
  4. Brand names acquired at great cost might help consumers by assuring quality.

25. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigs in surrounding states. Which of the following principles does this best illustrate:

  1. people respond to incentives
  2. rational people think at the margin
  3. a trademark can make everyone better off
  4. markets are usually a good way to organize economic activity
1.
A channel of distribution:
A) is any series of firms or individuals who participate in the flow of goods and services from producer to consumer or final user.
B) is only needed when products must be stored.
C) must include one or more intermediaries.
D) is only needed when products are sold indirectly.
2.
Which of the following statements about Place decisions is True?
A) Product classes are not related to Place objectives.
B) The product life cycle is not related to Place objectives.
C) Place decisions are short-term decisions that are easy to change.
D) Different market segments may require separate Place arrangements.
3.
Direct _____ involves personal sales contact between a representative of the company and an individual consumer.
A) marketing
B) selling
C) distribution
D) servicing
4.
A manufacturer prefers to produce and ship in large quantities to take advantage of economies of scale. Final consumers often want to purchase in small quantities. This difference between the producer and consumer is a:
A) Discrepancy of assortment.
B) Discrepancy of quantity.
C) Regrouping activity.
D) Discrepancy adjustment
5.
Which of the following best illustrates adjusting "discrepancies of assortment?"
A) General Motors makes Hummer for one product-market and Chevrolet for another product-market.
B) A hardware store sells all the hardware items wanted by most people.
C) Over 310 million U.S. consumers are served by around 330,000 manufacturers.
D) RCA sold more than 2,000,000 TVs last year
6.
Small farmers in the mountains of Peru pick coffee beans by hand, obtaining only a bucket a day. Then they sell them to buyers who put the beans in large bags to be shipped to processors. This regrouping activity is called:
A) Assorting
B) Wholesaling
C) Bulk-breaking
D) Accumulating
7.
Costco is a warehouse store that sells groceries, household items, and business products. Purchase quantities tend to be larger than in traditional stores that serve final consumers. For example, soft drinks are only sold in 24-can cases, not in 6-packs. Coffee is sold in 3-pound cans instead of one-pound foil packs. Which regrouping activity is Costco shifting to the consumer?
A) Accumulating.
B) Adjusting discrepancies.
C) Assorting.
D) Bulk-breaking.
8.
_____ means separating products into grades and qualities desired by different target markets.A) B) C) D)
A) Bulk-breaking
B) Sorting
C) Accumulating
D) Assorting
9.
A wine producer wants a supermarket manager to display its wines in a desirable end-of-aisle location, but the supermarket manager refuses to give that valuable real estate to this producer. This is an example of __________ conflict.
A) contractual
B) vertical
C) corporate
D) horizontal
10.
A local TV retailer hires knowledgeable salespeople to explain the differences among its models to customers, but a nearby discount store with very few sales staff sells the same TVs at a lower price. This is an example of __________ conflict.
A) horizontal
B) traditional
C) vertical
D) contractual
11.
Yukon Sportswear, a manufacturer of textile products, bought out the wholesaler that had been handling its distribution in Canada. This is an example of:
A) dual distribution.
B) reverse distribution.
C) a contractual channel system.
D) vertical integration.
12.
______________ means selling a product through only one wholesaler or retailer in a particular geographic area.
A) Exclusive distribution
B) Direct distribution
C) Intensive distribution
D) Multichannel distribution
13.
_____ means selling the right to use some process, trademark, patent, or other right for a fee or royalty.
A) Licensing
B) Management contracting
C) Joint venturing
D) Exporting
14.
Logistics, or physical distribution, is the ________________ part of the marketing mix.
A) Place
B) Production
C) Promotion
D) Product
15.
Physical distribution customer service level means all of the following EXCEPT:
A) Honda wants enough bumpers to build cars that day.
B) A vacationer wants Avis to have his rental car clean and ready when he arrives at the rental car counter.
C) Sears' shirts are priced at a fair value.
D) McDonald's has enough large cups so that customers can buy the larger size drinks which are on sale.
16.
The right physical distribution system should be based primarily on
A) the desired customer service level.
B) how customers store the product.
C) the physical characteristics of the product.
D) what is the lowest cost method of transportation for the product.
17.
The "total cost approach" to physical distribution management:
A) seeks to eliminate the storing function.
B) seeks to minimize the cost of transportation.
C) might suggest a high-cost transporting mode if storing costs could be reduced enough to lower total distribution costs.
D) ignores inventory carrying costs.
18.
Just-in-time (JIT) delivery:
A) Increases physical distribution costs for business customers.
B) Requires that a supplier be able to respond to the customer's production schedule.
C) Usually does not require e-commerce order systems and computer networks.
D) Means that deliveries are larger and less frequent.
19.
A _____ is the complete set of firms, facilities, and logistics activities that are involved in procuring materials, transforming them into intermediate or finished products, and distributing them to customers.
A) supply chain
B) physical distribution group
C) logistics partnership
D) just-in time group
20.
Which of the following products would have the lowest transporting costs as a percentage of the selling price?
A) Electronic equipment.
B) Chemicals and plastics.
C) Pharmaceuticals.
D) Sand and gravel.
21.
Which of the following statements about transporting by rail is True?
A) Rail transportation is the slowest mode of transportation.
B) Rail transportation is the least expensive mode of transportation.
C) Rail transportation is good for long-distance transportation of heavy, bulky items.
D) Railroads are most efficient at handling less-than-carload (LCL) shipments
22.
Regarding transporting by truck:
A) Trucks are best for moving large quantities of goods long distances.
B) Trucks are a very low cost mode of transportation.
C) Trucks are not reliable in meeting delivery schedules.
D) Trucks tend to provide fast delivery.
23.
Products that require a high frequency of scheduled shipments would be least suited to travel by
A) truck.
B) rail.
C) air.
D) water.
24.
In spite of high cost, high value, low-weight goods like high-fashion clothing and parts for the electronic industry are often shipped long distances by ____
A) rail.
B) water.
C) air.
D) pipeline.
25.
Air express companies place many small packages into specially designed cylinders that conform to the interior dimensions of a cargo airplane. This practice protects the smaller packages and helps to reduce distribution costs. The air express companies are practicing:
A) Containerization.
B) Piggybacking.
C) Freight forwarding.
D) Cylinderization.
26.
The railroad service which picks up truck trailers at a producer's location, loads them onto rail flatcars, hauls them close to the customer, and then delivers them to the buyer's door is:
A) truck service.
B) fast freight.
C) trailer service.
D) piggyback service.
27.
Inventory refers to
A) the amount of goods being stored.
B) minimizing storage costs.
C) the amount of goods being sold.
D) the marketing function of holding goods.
28.
When the manager of a local electronics store decides to offer its customers a gift-wrapping service for the holidays, this is a decision about:
A) Product
B) Place
C) Promotion
D) Price
29.
When the manager of a RadioShack electronics store decides to accept American Express credit cards from its customers, this is a decision about:
A) Product
B) Place
C) Promotion
D) Price
30.
Limited-line storesA) B) C) D)
A) specialize in certain lines of related products rather than a wide assortment.
B) carry anything they can sell in reasonable volume.
C) are a type of unconventional general store.
D) are larger stores that are organized into many separate departments and offer many product lines.
31.
Specialty shops generally:
A) want to be known for the distinctiveness of their product assortment and the special services they offer.
B) sell homogeneous shopping products.
C) are very good at speeding turnover.
D) carry complete lines--like department stores.
32.
The ____________ says that retailers should offer low prices to get faster turnover and greater sales volumes by appealing to larger markets.
A) Wheel of retailing theory
B) Production concept
C) Mass-merchandising concept
D) Sales concept
33.
A retail store that averages about $17 million in sales annually and specializes in groceries--with self-service and large assortments is a:
A) mass-merchandiser.
B) specialty shop.
C) convenience food store.
D) supermarket.
34.
________ offer