ECO101H1 Chapter Notes - Chapter 11: Average Cost, Diminishing Returns, Fixed Cost

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A firm is an organization that produces goods or services for sale. The quantity of an output a firm produces depends on the quality of the input and the state of production technology. Two types of input: fixed input an input whose quantity is fixed for a period of time and cannot be varied, it will stay there regardless of what you do with it. Land: variable input an input whose quantity the firm can vary at any time ex. The amount on workers, they can increase or decrease based on how much business they get. No input is fixed, they can adjust. Defined by the time period where at least one input is fixed. Total production curve the quantity of output depends on the quantity of the variable input. Change in quantity of labour / change in quantity of labour. This goes down as the graph continues.

Related Questions

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

Multiple Choice:

1. If 8 percent increase in the price of one good results in an increase of 4 percent in the quantity

demanded of another good, then it can be concluded that the two goods are:

a) complements.

b) substitutes.

c) independent.

d) normal.

2. The law of diminishing marginal utility explains why:

a) supply curves are upsloping.

b) demand curves are downsloping.

c) real income of the consumer rises when the price of a commodity falls.

d) substitution effect is always higher than income effect mentioned in c) above.

3. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he

maximizes utility is that the marginal utility:

a) of all products he consumes is zero.

b) of all products he consumes is positive.

c) is the same for all products.

d) per last dollar is the same for products consumed.

4. Diminishing returns are observed in increases of production output by adding a variable input to a fixed of

inputs because:

a) the ability or quality of the variable input added decreases are more is used.

b) the firm must lower the price of its product when it produces more units of output.

c) the per unit cost it must pay for the variable input increases as more of the input is used.

d) as more variable input is used, the amount of fixed input per variable input decreases.

5. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he

maximizes utility as he spends the last dollar of his budget is that the marginal utility:

e) of all products he consumes is zero.

f) of all products he consumes is positive.

g) is the same for all products.

h) per dollar for all products is the same.

6. The short run marginal cost (MC) curve eventually rises because of:

a) diseconomies of scale.

b) decreasing per unit fixed costs.

c) diminishing marginal returns.

d) increasing marginal productivity of the variable input.

7. Other things being equal, if the prices of a firm

peardeer710

Fixed cost is sometimes called

Select one:

a. total cost

b. sunk cost

c. variable cost

d. marginal cost

e. average total cost

Labor productivity measures

Select one:

a. input per machine per hour

b. input per laborer per hour

c. output per machine per hour

d. output per laborer per hour

e. output per unit of land per hour

An example of a firms fixed cost would be the

Select one:

a. monthly rent it pays based on a multiple-year lease

b. cost of employing labor

c. quantity of inventory it accumulates

d. raw materials used in production

e. cost of shipping the goods it produces

Which of the following is a short-run decision for a muffin shop?

Select one:

a. hire more workers

b. add new ovens

c. expand into the building next door

d. open a second shop on the other side of town

e. go out of business

An example of a variable cost to the firm is the

Select one:

a. monthly rent it pays based on a multiple-year lease

b. cost of shipping the goods it produces

c. property taxes it pays

d. interest payments on a bank loan

e. entrepreneurs opportunity cost

ECO101H1 Chapter Notes - Chapter 11: Average Cost, Diminishing Returns, Fixed Cost

ECO101H1 Full Course Notes

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