Question 1

Long-run average costs are the same as long-run total costs

Accepted Answer

A) True 
 B)False

Question 2

Suppose a lawyer leaves his $50, 000-a-year job and starts his own firm breeding pit bulls.In the first year, his accounting profit is $70, 000.The lawyer finances his new business with $100, 000 from his savings account, which had earned 10 percent interest.His economic profit is

Accepted Answer

A) $10, 000 
B) $60, 000 
C) $70, 000 
D) -$80, 000 
E) -$90, 000 
A) $10, 000 
B) $60, 000 
C) $70, 000 
D) -$80, 000 
E) -$90, 000

Question 3

Exhibit 7-2   Given the information in Exhibit 7-2, what is the average product of the fourth unit of labor?

Accepted Answer

A) 5 pairs of shoes 
B) 10 pairs of shoes 
C) 20 pairs of shoes 
D) 50 pairs of shoes 
E) 80 pairs of shoes 
A) 5 pairs of shoes 
B) 10 pairs of shoes 
C) 20 pairs of shoes 
D) 50 pairs of shoes 
E) 80 pairs of shoes

Question 4

The short run is a period of time

Accepted Answer

A) equal to or less than six months 
B) during which all resources may be varied 
C) during which all resources are fixed 
D) during which at least one resource is fixed 
E) during which at least one resource may be varied 
A) equal to or less than six months 
B) during which all resources may be varied 
C) during which all resources are fixed 
D) during which at least one resource is fixed 
E) during which at least one resource may be varied

Question 5

Which of the following would most likely reach the long run most rapidly?

Accepted Answer

A) a nuclear power plant 
B) a college 
C) a lumber mill 
D) a shopping mall 
E) a hot dog stand 
A) a nuclear power plant 
B) a college 
C) a lumber mill 
D) a shopping mall 
E) a hot dog stand

Question 6

Economic profit is defined as total revenue

Accepted Answer

A) plus total costs 
B) minus marginal costs 
C) minus variable costs 
D) minus total costs 
E) minus fixed costs 
A) plus total costs 
B) minus marginal costs 
C) minus variable costs 
D) minus total costs 
E) minus fixed costs

Question 7

If fixed cost at Q = 100 is $130, then

Accepted Answer

A) fixed cost at Q = 0 is $0 
B) fixed cost at Q = 0 is less than $130 
C) fixed cost at Q = 200 is $260 
D) fixed cost at Q = 200 is $130 
E) it is impossible to calculate fixed costs at any other quantity 
A) fixed cost at Q = 0 is $0 
B) fixed cost at Q = 0 is less than $130 
C) fixed cost at Q = 200 is $260 
D) fixed cost at Q = 200 is $130 
E) it is impossible to calculate fixed costs at any other quantity

Question 8

If a firm is experiencing diminishing marginal returns, its marginal product is negative.

Accepted Answer

A) True 
 B)False

Question 9

The length of time that represents the long run

Accepted Answer

A) is greater than one year 
B) is greater than six months 
C) is longer in service industries than in manufacturing 
D) is the same for all industries 
E) varies from industry to industry 
A) is greater than one year 
B) is greater than six months 
C) is longer in service industries than in manufacturing 
D) is the same for all industries 
E) varies from industry to industry

Question 10

Accounting profit equals

Accepted Answer

A) explicit costs minus implicit costs 
B) economic profit minus implicit costs 
C) economic profit minus explicit costs 
D) economic profit minus explicit costs and implicit costs 
E) economic profit plus implicit costs 
A) explicit costs minus implicit costs 
B) economic profit minus implicit costs 
C) economic profit minus explicit costs 
D) economic profit minus explicit costs and implicit costs 
E) economic profit plus implicit costs

Question 11

Suppose that at the current level of output, Pat's Hats has fixed costs of $500, variable costs of $1, 000, and $2, 000 in total revenue.Which of the following is true?

Accepted Answer

A) Profit is currently $500 and, in the long run, it will be $1, 000 because there will be no fixed costs. 
B) Profit is currently $500 and, in the long run, it will be $1, 500 because there will be no variable costs. 
C) Profit is currently $500. 
D) Profit is currently $500, and Pat's Hats will want to decrease its plant size in the long run to lower its fixed costs. 
E) Pat's Hats will continue to operate as long as revenue is greater than $500. 
A) Profit is currently $500 and, in the long run, it will be $1, 000 because there will be no fixed costs. 
B) Profit is currently $500 and, in the long run, it will be $1, 500 because there will be no variable costs. 
C) Profit is currently $500. 
D) Profit is currently $500, and Pat's Hats will want to decrease its plant size in the long run to lower its fixed costs. 
E) Pat's Hats will continue to operate as long as revenue is greater than $500.

Question 12

Economic profit is defined as

Accepted Answer

A) total revenue minus price 
B) price minus quantity 
C) total revenue minus what must be paid to resources to attract them from their best alternative use 
D) total revenue divided by what must be paid to resources to attract them from their best alternative use 
E) total revenue plus what must be paid to resources to attract them from their best alternative use 
A) total revenue minus price 
B) price minus quantity 
C) total revenue minus what must be paid to resources to attract them from their best alternative use 
D) total revenue divided by what must be paid to resources to attract them from their best alternative use 
E) total revenue plus what must be paid to resources to attract them from their best alternative use

Question 13

To a firm facing constant input prices, increasing marginal returns

Accepted Answer

A) means that each additional unit of output costs more to produce than the previous unit 
B) means that the marginal product of the variable input decreases as more of the input is used 
C) can occur due to specialization and division of labor 
D) usually occur at very high rates of output 
E) can never occur 
A) means that each additional unit of output costs more to produce than the previous unit 
B) means that the marginal product of the variable input decreases as more of the input is used 
C) can occur due to specialization and division of labor 
D) usually occur at very high rates of output 
E) can never occur

Question 14

Normal profit is defined as

Accepted Answer

A) accounting profit 
B) economic profit 
C) profit necessary to ensure that opportunity costs are covered 
D) accounting profit minus economic profit 
E) economic profit minus accounting profit 
A) accounting profit 
B) economic profit 
C) profit necessary to ensure that opportunity costs are covered 
D) accounting profit minus economic profit 
E) economic profit minus accounting profit

Question 15

If a firm shuts down in the short run and produces no output, its total cost will be

Accepted Answer

A) zero 
B) equal to total variable cost 
C) equal to total fixed cost 
D) equal to explicit costs only 
E) impossible to calculate 
A) zero 
B) equal to total variable cost 
C) equal to total fixed cost 
D) equal to explicit costs only 
E) impossible to calculate

Question 16

Which of the following is also known as the firm's planning curve?

Accepted Answer

A) the average total cost curve 
B) the total cost curve 
C) the long-run average cost curve 
D) the long-run marginal cost curve 
E) the fixed cost curve 
A) the average total cost curve 
B) the total cost curve 
C) the long-run average cost curve 
D) the long-run marginal cost curve 
E) the fixed cost curve

Question 17

Which of the following correctly describes the relationship between the marginal cost and average variable cost curves?

Accepted Answer

A) MC is everywhere above AVC 
B) AVC is everywhere above MC 
C) MC crosses AVC at AVC's minimum point 
D) MC crosses AVC at MC's minimum point 
E) both AVC and MC first rise and then fall 
A) MC is everywhere above AVC 
B) AVC is everywhere above MC 
C) MC crosses AVC at AVC's minimum point 
D) MC crosses AVC at MC's minimum point 
E) both AVC and MC first rise and then fall

Question 18

Exhibit 7-3   In Exhibit 7-3, diminishing marginal returns set in with the addition of the

Accepted Answer

A) first worker 
B) third worker 
C) fourth worker 
D) fifth worker 
E) seventh worker 
A) first worker 
B) third worker 
C) fourth worker 
D) fifth worker 
E) seventh worker

Question 19

The law of diminishing marginal returns states that

Accepted Answer

A) long-run average cost declines as output increases 
B) if the marginal product is above the average product, the average will rise 
C) as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes 
D) as a person consumes more of a good, the marginal satisfaction from that good eventually diminishes 
E) if marginal product is positive, total product rises 
A) long-run average cost declines as output increases 
B) if the marginal product is above the average product, the average will rise 
C) as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes 
D) as a person consumes more of a good, the marginal satisfaction from that good eventually diminishes 
E) if marginal product is positive, total product rises

Question 20

Which economic concept explains why a large drugstore chain can produce at a lower average cost than Whoville Pharmacy, an individually owned drugstore?

Accepted Answer

A) increasing marginal returns 
B) diminishing marginal returns 
C) economies of scale 
D) diseconomies of scale 
E) constant returns to scale 
A) increasing marginal returns 
B) diminishing marginal returns 
C) economies of scale 
D) diseconomies of scale 
E) constant returns to scale

Exam 7: Production and Cost in the Firm

Long-run average costs are the same as long-run total costs

Suppose a lawyer leaves his $50, 000-a-year job and starts his own firm breeding pit bulls.In the first year, his accounting profit is $70, 000.The lawyer finances his new business with $100, 000 from his savings account, which had earned 10 percent interest.His economic profit is

Exhibit 7-2 Given the information in Exhibit 7-2, what is the average product of the fourth unit of labor?

The short run is a period of time

Which of the following would most likely reach the long run most rapidly?

Economic profit is defined as total revenue

If fixed cost at Q = 100 is $130, then

If a firm is experiencing diminishing marginal returns, its marginal product is negative.

The length of time that represents the long run

Accounting profit equals

Suppose that at the current level of output, Pat's Hats has fixed costs of $500, variable costs of $1, 000, and $2, 000 in total revenue.Which of the following is true?

Economic profit is defined as

To a firm facing constant input prices, increasing marginal returns

Normal profit is defined as

If a firm shuts down in the short run and produces no output, its total cost will be

Which of the following is also known as the firm's planning curve?

Which of the following correctly describes the relationship between the marginal cost and average variable cost curves?

Exhibit 7-3 In Exhibit 7-3, diminishing marginal returns set in with the addition of the

The law of diminishing marginal returns states that

Which economic concept explains why a large drugstore chain can produce at a lower average cost than Whoville Pharmacy, an individually owned drugstore?

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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