Mini-Review
- Which of the following is true regarding marginal product?
A. It is the measure of impact an added unit of input has on output.
B. It is the measure of how outputs affect inputs.
C. It lets producers know how much a product is going to cost.
D. It describes the relationship between average total cost and marginal cost.
E. None of the above. - Why are long-run cost curves U-shaped?
A. Because they reveal an increasing cost followed by decreasing costs.
B. Because they describe the impact of economies of scale.
C. Because as resource prices increase, so does production.
D. Because resource prices are too cheap.
E. Both A and C. - Which of the following best describes average variable costs?
A. Variable cost multiplied by quantity
B. Variable costs multiplied by fixed costs
C. Variable costs divided by quantity
D. Variable costs divided by fixed costs
E. Variable costs divided by marginal costs
Mini- Review Answers
- A.Marginal product is the measure of impact an additional unit of input has on output.
- B.Economies of scale explain why long-run cost curves are U-shaped. When the firm initially produces a large
quantity, there are economies of scale. As the firm continues to increase its average total cost, there are no returns
to scale. - C.To derive average variable costs, you must divide variable costs by quantity.
Revenue for Firms
Revenueis calculated by multiplying the price of a product by the number of units sold. Remember that revenue is not
the same as profit. Earlier we discussed the differences between implicit and explicit costs. Revenue is simply the
amount of monetary flow that is handled by a firm as compensation for its product. Marginal revenue, much like mar-
ginal cost, is the difference in revenue when producing one more unit. The marginal revenue should rise as more units
are produced.
A firm’s profit is determined by subtracting all costs (implicit and explicit) from revenue:
Profit = total revenue – total costProduction Costs