Total Fixed Cost (TFC)

The total of all costs that do not change with output, even if output is zero.

Average Variable Cost (AVC)

Total variable costs divided by the number of units of output, a per-unit measure of variable costs.  

Total Variable Cost (TVC)

The total of all costs that vary with output in the short-run.

Average Fixed Cost (AFC)

Total fixed cost divided by the number of units of output; a per-unit measure of fixed costs.

Marginal Cost (MC)

The increase in total cost that results from producing one more unit of output. Marginal costs reflect changes in variable costs.

Average Total Cost (ATC)

Total cost divided by the number of units of output.

An increase in a firm's scale of production leads to lower average costs per unit produced.

Constant Return to Scale

An increase in a firm's scale of production has no effect on average costs per unit produced.

An increase in a firm's scale of production leads to higher average costs per unit produced.

Which of the following is not an explicit cost?

the value of a firm owner's time

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs?

$52,000

Economic profit is defined as

total revenue minus implicit and explicit costs

Suppose Ernie gives up his job as financial advisor for P.E.T.S., at which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 in the store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000, and explicit costs were $10,000. Calculate Ernie's accounting profit.

$40,000

Normal profit is defined as

profit necessary to ensure that opportunity costs are covered

Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of professors rise,

her economic profit from textbooks will fall

The short run is a period of time

during which at least one resource is fixed

Increasing marginal returns are generally the result of

specialization and division of labor

When diminishing marginal returns set in, marginal product is

positive and decreasing

Fixed costs are defined as

costs that do not vary as quantity produced increases

Which of the following best explains why marginal cost eventually increases as output increases?

marginal product decreases

Suppose Guild produces 5,000 guitars per year. Its average total cost is $90, and its fixed cost is $250,000. What is its variable cost?

$200,000

On a graph of production costs, the vertical distance between the fixed cost curve and the total cost curve at a specific quantity represents

variable cost

If the average height in the classroom were 5 feet 10 inches and Patrick Ewing, who is 7 feet tall, came in and sat down,

the average height would rise somewhat

Long-run VARIABLE costs are the same as long-run TOTAL costs

true

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

the firm is experiencing diseconomies of scale

A production function        

shows the relationship between quantities of inputs used and quantity of output produced

Upon opening a printing and copy shop, a firm budgets $40,000 for copy machines and labor. If the price of labor is $15 per hour, how many hours of labor can the firm hire if it spends nothing on machines?

2667 hours

explicit costs are

actual monetary payments for resources purchased

John moved his office from a building he was renting downtown to the carriage house he owns in back of his house. How will his costs change?

explicit costs fall; implicit costs rise

accounting profits equal

economic profit plus implicit costs

If the Money Store earns a normal profit this year, its

economic profit is 0

Which of the following is a short-run adjustment?

People's Bank hires two new tellers to meet increased demand for customer services.

The law of diminishing returns explains why

short-run MC and AVC curves are U-shaped

In the range of increasing marginal returns, total product is

increasing at an increasing rate

A variable cost is one that changes

as output changes

What is the relationship between marginal cost and marginal product?

When marginal product increases, marginal cost falls.

Which of the following is true of the MC curve?

it intersects both the ATC and the AVC curves at their minimums.