Quiz 3

Question 1

Equation for average total cost

Answer 1

Average fixed cost +average variable cost

AFC + AVC = ATC

Question 2

Equation for average fixed cost

Answer 2

Total fixed cost/quantity of output

Question 3

When MC < ATC, ATC will fall. This happens because the decrease in _______> than the increase in ________.

Answer 3

When Marginal Cost (MC) < Average Total Cost (ATC), ATC will fall. This happens because the decrease in AFC > than the increase in AVC.

AFC, AVC

Question 4

The change in total output resulting from a one unit increase in quantity of labor, holding all other inputs constant, is _________.

Answer 4

marginal product of labor.

Question 5

When Tom hires two workers in his shoe factory, the total product is 33 pairs of shoes. When he hires 3 workers, the total product is 42 pairs of shoes. The slope of the TPL curve between 2 and 3 workers is ________.

Answer 5

9

Question 6

As production increases and the fixed costs are divided by larger and larger quantities of output, this leads to lower average fixed cost. This is referred to as the __________ effect.

Answer 6

Spreading

Question 7

• Suppose Ford builds a new plant and finds that it costs less to produce each car. What kind of returns to scale are they facing?
• What problem are they getting around in this new plant?

Answer 7

• Ford has increasing returns to scale at its new plant.
• By building this new plant, Ford has gotten around decreasing marginal returns that it would have faced at its older plant.

Question 8

what is perfect competition?

Answer 8

• Many firms, all small price takers
• All firms sell homogenous products
• Mostly free entry and exit