Exam 11: Technology, Production, and Costs

Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication. Because these employees work on several books simultaneously, the number of people the company hires will not go up and down with the quantity of books the company publishes during any particular year. The salaries and benefits of people in these job categories will be included in

The law of diminishing marginal returns

When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is

If a firm is producing no output in the short run, then its total costs are zero.

When a firm experiences a positive technological change

The law of diminishing marginal returns states

The processes a firm uses to turn inputs into outputs of goods and services is called

Figure 11-14 Figure 11-14 shows the optimal input combinations for the production of a given quantity of cotton in the United States and in China. -Refer to Figure 11-14. Which of the following could explain why the United States and China use different input combinations to produce a given quantity of cotton and yet, each country produces that quantity at the lowest possible cost?

Figure 11-2 -Refer to Figure 11-2. The average product of labor declines after L₂ because

Higher isocost lines correspond to higher

Describe the difference between technology and positive technological change.

Explain why the marginal cost of production must increase if the marginal product of a variable resource is decreasing.

Figure 11-13 -Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, then along the isocost AF, the total cost

What is an isocost line? What is the slope of an isocost line?

Which of the following is an implicit cost of production?

Suppose you have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for $130 each. Your competitor ,who has a store of the same size as yours, is currently selling about 10 machines a month at a price of $200 per machine. You expect to sell about 6 machines a month at a price of $220 per machine. If you lower your price, you expect to make a loss. Which of the following could explain why your competitor is able to profitably sell the machine at a lower price although the cost of purchasing the machine is the same for the both of you?

All of the following cost curves are U-shaped except

Figure 11-17 -Refer to Figure 11-17. Assume that production isoquants are convex. Total cost and output produced must increase for each of the following movements except one. Which movement is the exception?

Figure 11-13 -Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the following shows a decrease in the price of capital while the price of labor remains unchanged?

Figure 11-6 Figure 11-6 contains information about the short run cost structure of a firm. -Refer to Figure 11-6. In the figure above, which letter represents the average variable cost curve?