Question 1

Working alone, a person who shirks receives __________ the benefits of shirking and pays __________ the costs of shirking.

Accepted Answer

When working alone, a person who shirks receives all the benefits of shirking, such as less work or taking it easy, and also bears all the costs, such as lower output or lower quality of work, since there is no one else to share the workload or consequences.

Question 2

Define economies of scale and give two reasons why firms may experience economies of scale. Is economies of scale a long-run concept or a short-run concept?

Accepted Answer

The answer of Define economies of scale and give two...

Question 3

Exhibit 21-14
  Assume that labor is the only variable input and that each additional laborer is paid $600.
-Refer to Exhibit 21-14. What is the level of output with 2 and 3 laborers working [blanks (A) and (B)], respectively?

Accepted Answer

Exhibit 21-14 shows that with 2 laborers, output is 175 units, and with 3 laborers, output is 225 units.

Question 4

In the theory of the firm (as put forth by Alchian and Demsetz), trade or exchange pops up in the following situation:

Accepted Answer

The answer of In the theory of the firm (as...

Question 5

The Alchian and Demsetz theory of why business firms exist suggests that

Accepted Answer

The Alchian and Demsetz theory posits that team production can lead to outcomes where the collective output is greater than the sum of what each individual could produce separately, due to synergies and efficiencies gained from working together.

Question 6

Describe the law of diminishing marginal returns. How does it relate to the shape of the marginal cost (MC) curve?

Accepted Answer

The answer of Describe the law of diminishing marginal returns....

Question 7

Which of the following situations would prompt individuals to try to form a team (firm), according to Alchian and Demsetz.

Accepted Answer

Alchian and Demsetz's theory on team production suggests that individuals will form teams (firms) when their joint efforts lead to higher productivity than their individual efforts combined. In option B, the combined production of goods increases from 100 units (working alone) to 120 units (working together), indicating a productivity gain from teamwork, which aligns with Alchian and Demsetz's perspective.

Question 8

There is a monitorless team (firm) of 10 persons. The 10 persons agree to work together and split the revenue (they earn) equally. In this setting, the cost of shirking to an individual is

Accepted Answer

In a team setting where revenue is split equally, the cost of shirking (not working as hard) for an individual is lower than it would be if the individual worked alone. This is because the individual can reduce their effort but still receive an equal share of the revenue generated by the team, thus spreading the cost of their reduced effort across all team members.

Question 9

Exhibit 21-14
  Assume that labor is the only variable input and that each additional laborer is paid $600.
-Refer to Exhibit 21-14. What is the marginal cost of producing this good with 1 and 2 laborers working [blanks (E) and (F)], respectively?

Accepted Answer

The answer of Exhibit 21-14
  Assume that labor is...

Question 10

Exhibit 21-14
  Assume that labor is the only variable input and that each additional laborer is paid $600.
-Refer to Exhibit 21-14. What is the MPP of the first unit of labor [blank (C)]?

Accepted Answer

The Marginal Physical Product (MPP) of the first unit of labor is the additional output produced by employing that first unit of labor. It is calculated as the change in total output when the labor input is increased from 0 to 1 unit. In this case, the total output increases from 0 to 100 units with the employment of the first unit of labor, making the MPP 100 units.

Question 11

Exhibit 21-14
  Assume that labor is the only variable input and that each additional laborer is paid $600.
-Refer to Exhibit 21-14. What is the MPP of the fourth unit of labor [blank (D)]?

Accepted Answer

The Marginal Physical Product (MPP) of the fourth unit of labor is calculated by the difference in total output when the fourth unit of labor is added. Without specific numbers from Exhibit 21-14, the correct answer cannot be directly calculated. However, based on the question's structure, if D is indicated as the correct choice, it implies that the MPP of the fourth unit of labor is 15 units.

Question 12

Exhibit 21-14
  Assume that labor is the only variable input and that each additional laborer is paid $600.
-Refer to Exhibit 21-14. What is the marginal cost of producing this good with 3 and 4 laborers working [blanks (G) and (H)], respectively?

Accepted Answer

The answer of Exhibit 21-14
  Assume that labor is...

Question 13

The __________ hand is the metaphor used to refer to market coordination, whereas the __________ hand is the metaphor used to refer to managerial coordination.

Accepted Answer

The "invisible hand" refers to market coordination, as introduced by Adam Smith, suggesting that individuals' pursuit of self-interest in free markets leads to economic efficiency as if guided by an unseen hand. The "visible hand" refers to managerial coordination within firms, as described by Alfred Chandler, indicating that managers' deliberate actions guide the firm's resources and operations.

Question 14

According to the textbook, Iceland used crowdsourcing to

Accepted Answer

Iceland used crowdsourcing to rewrite its constitution, involving the public in the process to gather suggestions and feedback.

Question 15

In a college course it is likely that there will be ___________ shirking in a group project than in an individual project because the costs of shirking are relatively _________ in the group project.

Accepted Answer

In a group project, individuals might shirk more because the costs of shirking (e.g., lower grades, peer disapproval) are distributed among all group members, making them relatively lower for each individual compared to an individual project where the sole individual bears the full cost of not contributing.

Question 16

"Managerial coordination" refers to the

Accepted Answer

Managerial coordination involves managers directing and organizing work efforts, ensuring that employees perform the tasks necessary to achieve the organization's goals.

Question 17

According to economists Alchian and Demsetz, firms are formed when

Accepted Answer

Alchian and Demsetz argue that firms are formed because team production can be more efficient than individual production, leading to a greater total output than if each person worked independently. This concept emphasizes the advantages of collaboration and specialization within firms.

Question 18

As the marginal physical product of U.S. workers _________________, the marginal cost of goods produced in the U.S. ______________ and unit costs _____________. This makes American goods ________________ competitive in the global marketplace.

Accepted Answer

The marginal physical product of workers represents the additional output produced by adding one more worker. When it rises, it means each worker is producing more, which typically leads to a decrease in the marginal cost of goods (since less labor is needed per unit of output). Lower marginal costs lead to lower unit costs, making American goods more competitive internationally by making them cheaper or of better value compared to foreign products.

Question 19

What is the typical shape of the AFC curve? Explain why it is shaped this way.

Accepted Answer

The answer of What is the typical shape of the...

Question 20

Economists predict that the __________ the cost of shirking to an individual, the __________ shirking that individual will undertake, ceteris paribus.

Accepted Answer

The correct answers are B) higher; less and C) lower; more. This is because when the cost of shirking (avoiding work) is higher, individuals are less likely to shirk due to the higher penalties or consequences. Conversely, when the cost is lower, individuals are more likely to shirk since the penalties or consequences are less severe.

Quiz 21: Production and Costs

Working alone, a person who shirks receives the benefits of shirking and pays the costs of shirking.

Define economies of scale and give two reasons why firms may experience economies of scale. Is economies of scale a long-run concept or a short-run concept?

Exhibit 21-14 Assume that labor is the only variable input and that each additional laborer is paid $600. -Refer to Exhibit 21-14. What is the level of output with 2 and 3 laborers working [blanks (A) and (B) ], respectively?

In the theory of the firm (as put forth by Alchian and Demsetz) , trade or exchange pops up in the following situation:

The Alchian and Demsetz theory of why business firms exist suggests that

Describe the law of diminishing marginal returns. How does it relate to the shape of the marginal cost (MC) curve?

Which of the following situations would prompt individuals to try to form a team (firm) , according to Alchian and Demsetz.

There is a monitorless team (firm) of 10 persons. The 10 persons agree to work together and split the revenue (they earn) equally. In this setting, the cost of shirking to an individual is

Exhibit 21-14 Assume that labor is the only variable input and that each additional laborer is paid $600. -Refer to Exhibit 21-14. What is the marginal cost of producing this good with 1 and 2 laborers working [blanks (E) and (F) ], respectively?

Exhibit 21-14 Assume that labor is the only variable input and that each additional laborer is paid $600. -Refer to Exhibit 21-14. What is the MPP of the first unit of labor [blank (C) ]?

Exhibit 21-14 Assume that labor is the only variable input and that each additional laborer is paid $600. -Refer to Exhibit 21-14. What is the MPP of the fourth unit of labor [blank (D) ]?

Exhibit 21-14 Assume that labor is the only variable input and that each additional laborer is paid $600. -Refer to Exhibit 21-14. What is the marginal cost of producing this good with 3 and 4 laborers working [blanks (G) and (H) ], respectively?

The hand is the metaphor used to refer to market coordination, whereas the hand is the metaphor used to refer to managerial coordination.

According to the textbook, Iceland used crowdsourcing to

In a college course it is likely that there will be ___ shirking in a group project than in an individual project because the costs of shirking are relatively _ in the group project.

"Managerial coordination" refers to the

According to economists Alchian and Demsetz, firms are formed when

As the marginal physical product of U.S. workers _________, the marginal cost of goods produced in the U.S. and unit costs _. This makes American goods __________ competitive in the global marketplace.

What is the typical shape of the AFC curve? Explain why it is shaped this way.

Economists predict that the the cost of shirking to an individual, the shirking that individual will undertake, ceteris paribus.