Question 1

Empirical studies of production suggest that the long-run average cost curve

Accepted Answer

A) is U-shaped 
B) has an inverted L shape 
C) is L-shaped 
D) is horizontal 
E) shows diminishing marginal returns 
A) is U-shaped 
B) has an inverted L shape 
C) is L-shaped 
D) is horizontal 
E) shows diminishing marginal returns

Question 2

Exhibit 7-5   In Exhibit 7-5, what are variable costs at 15 units of output?

Accepted Answer

A) $30 
B) $10 
C) $1 
D) $20 
E) it is impossible to calculate variable cost unless we know the daily wage 
A) $30 
B) $10 
C) $1 
D) $20 
E) it is impossible to calculate variable cost unless we know the daily wage

Question 3

When marginal product is decreasing, marginal cost is

Accepted Answer

A) less than zero 
B) equal to zero 
C) constant 
D) decreasing 
E) increasing 
A) less than zero 
B) equal to zero 
C) constant 
D) decreasing 
E) increasing

Question 4

The additional output obtained by adding another unit of labor to the production process is called

Accepted Answer

A) the marginal cost of labor 
B) the average output of labor 
C) a variable cost 
D) the marginal product of labor 
E) the marginal utility of labor 
A) the marginal cost of labor 
B) the average output of labor 
C) a variable cost 
D) the marginal product of labor 
E) the marginal utility of labor

Question 5

Exhibit 7-14 Total Cost Curve   In Exhibit 7-14, what is the average cost when producing 10 units of output?

Accepted Answer

A) $0 
B) $2.00 
C) $4.00 
D) $4.60 
E) cannot be determined from the total cost curve 
A) $0 
B) $2.00 
C) $4.00 
D) $4.60 
E) cannot be determined from the total cost curve

Question 6

Exhibit 7-8   In Exhibit 7-8, when output is 10,

Accepted Answer

A) total cost equals $10 
B) fixed cost equals $1 
C) variable cost equals $10 
D) marginal cost equals $10 
E) fixed cost equals $10 
A) total cost equals $10 
B) fixed cost equals $1 
C) variable cost equals $10 
D) marginal cost equals $10 
E) fixed cost equals $10

Question 7

If all my savings are invested in my consulting company, an increase in the interest rate increases my implicit costs.

Accepted Answer

A) True 
 B)False

Question 8

Suppose Ernie gives up his job as financial advisor for P.E.T.S., at which he earned $30, 000 per year, to open up a store selling spot remover to Dalmatians.He invested $10, 000 in the store, which had been in savings earning 5 percent interest.This year's revenues in the new business were $50, 000, and explicit costs were $10, 000.Calculate Ernie's economic profit.

Accepted Answer

A) $10, 000 
B) $50, 000 
C) $20, 000 
D) $40, 000 
E) $9, 500 
A) $10, 000 
B) $50, 000 
C) $20, 000 
D) $40, 000 
E) $9, 500

Question 9

Exhibit 7-14 Total Cost Curve   In Exhibit 7-14, at what point does the firm begin to experience increasing marginal cost?

Accepted Answer

A) after the 1st unit of output 
B) after the 3rd unit of output 
C) after the 5th unit of output 
D) after the 7th unit of output 
E) cannot be determined from the total cost curve 
A) after the 1st unit of output 
B) after the 3rd unit of output 
C) after the 5th unit of output 
D) after the 7th unit of output 
E) cannot be determined from the total cost curve

Question 10

Zipco's accounting profit is equal to its

Accepted Answer

A) total revenue minus opportunity costs 
B) total revenue plus opportunity costs 
C) total revenue minus imputed costs 
D) total revenue minus explicit costs 
E) total revenue minus explicit and implicit costs 
A) total revenue minus opportunity costs 
B) total revenue plus opportunity costs 
C) total revenue minus imputed costs 
D) total revenue minus explicit costs 
E) total revenue minus explicit and implicit costs

Question 11

Which of the following is true of marginal product?

Accepted Answer

A) The firm should produce where marginal product is greatest. 
B) The firm should produce where marginal product is increasing. 
C) When marginal product is falling, total product is falling. 
D) The firm should produce where marginal product is zero. 
E) When marginal product is increasing, total product is increasing by increasing amounts. 
A) The firm should produce where marginal product is greatest. 
B) The firm should produce where marginal product is increasing. 
C) When marginal product is falling, total product is falling. 
D) The firm should produce where marginal product is zero. 
E) When marginal product is increasing, total product is increasing by increasing amounts.

Question 12

John moved his office from a building he was renting downtown to the carriage house he owns in back of his house.How will his profit change?

Accepted Answer

A) Implicit costs fall. 
B) Explicit costs remain unchanged while implicit costs rise. 
C) Economic profit must fall. 
D) Explicit costs rise. 
E) Accounting profit will rise. 
A) Implicit costs fall. 
B) Explicit costs remain unchanged while implicit costs rise. 
C) Economic profit must fall. 
D) Explicit costs rise. 
E) Accounting profit will rise.

Question 13

Zipco's economic profit is equal to its

Accepted Answer

A) total revenue minus accounting profit 
B) total revenue minus explicit costs 
C) total revenue plus accounting profit 
D) total revenue plus opportunity costs 
E) accounting profit minus implicit costs 
A) total revenue minus accounting profit 
B) total revenue minus explicit costs 
C) total revenue plus accounting profit 
D) total revenue plus opportunity costs 
E) accounting profit minus implicit costs

Question 14

Exhibit 7-11   Movement from point a to point b in Exhibit 7-11 indicates that the firm is experiencing

Accepted Answer

A) economies of scale 
B) increasing average cost 
C) economies of cost 
D) a decrease in average plant size 
E) diseconomies of scale 
A) economies of scale 
B) increasing average cost 
C) economies of cost 
D) a decrease in average plant size 
E) diseconomies of scale

Question 15

Which of the following is most likely to be a fixed resource for Paul's Country Fresh Pies, Inc.?

Accepted Answer

A) berries 
B) flour 
C) bakers 
D) eggs 
E) ovens 
A) berries 
B) flour 
C) bakers 
D) eggs 
E) ovens

Question 16

Total fixed cost divided by the level of output yields

Accepted Answer

A) average variable cost per unit 
B) average fixed costs per unit 
C) marginal cost per unit 
D) average total cost per unit 
E) marginal productivity per unit of fixed resource 
A) average variable cost per unit 
B) average fixed costs per unit 
C) marginal cost per unit 
D) average total cost per unit 
E) marginal productivity per unit of fixed resource

Question 17

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

Accepted Answer

A) the law of diminishing returns is in effect 
B) long-run average costs must be decreasing 
C) the firm is experiencing diseconomies of scale 
D) the firm should increase production 
E) the firm is experiencing constant returns to scale 
A) the law of diminishing returns is in effect 
B) long-run average costs must be decreasing 
C) the firm is experiencing diseconomies of scale 
D) the firm should increase production 
E) the firm is experiencing constant returns to scale

Question 18

Which of the following is a short-run adjustment?

Accepted Answer

A) Toyota builds an automobile plant in Kentucky. 
B) Faced with increasing enrollment, a private college builds a new School of Business building. 
C) Because of staggering losses, three insurance companies exit the industry. 
D) People's Bank hires two new tellers to meet increased demand for customer services. 
E) Shaveco enters the razor blade market with a new product, produced in the United States. 
A) Toyota builds an automobile plant in Kentucky. 
B) Faced with increasing enrollment, a private college builds a new School of Business building. 
C) Because of staggering losses, three insurance companies exit the industry. 
D) People's Bank hires two new tellers to meet increased demand for customer services. 
E) Shaveco enters the razor blade market with a new product, produced in the United States.

Question 19

Diseconomies of scale are pictured on a graph by the upward-sloping portion of the

Accepted Answer

A) marginal product curve 
B) short-run marginal cost curve 
C) long-run marginal cost curve 
D) short-run average cost curve 
E) long-run average cost curve 
A) marginal product curve 
B) short-run marginal cost curve 
C) long-run marginal cost curve 
D) short-run average cost curve 
E) long-run average cost curve

Question 20

Two friends, Diane and Sam, own and run a bar.Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips.Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips.Which of the following represents an implicit cost of operating the bar?

Accepted Answer

A) Diane's wage 
B) Sam's time 
C) Diane's tips 
D) Sam's tips 
E) both Diane's and Sam's tips 
A) Diane's wage 
B) Sam's time 
C) Diane's tips 
D) Sam's tips 
E) both Diane's and Sam's tips

Exam 7: Production and Cost in the Firm

Empirical studies of production suggest that the long-run average cost curve

Exhibit 7-5 In Exhibit 7-5, what are variable costs at 15 units of output?

When marginal product is decreasing, marginal cost is

The additional output obtained by adding another unit of labor to the production process is called

Exhibit 7-14 Total Cost Curve In Exhibit 7-14, what is the average cost when producing 10 units of output?

Exhibit 7-8 In Exhibit 7-8, when output is 10,

If all my savings are invested in my consulting company, an increase in the interest rate increases my implicit costs.

Exhibit 7-14 Total Cost Curve In Exhibit 7-14, at what point does the firm begin to experience increasing marginal cost?

Zipco's accounting profit is equal to its

Which of the following is true of marginal product?

John moved his office from a building he was renting downtown to the carriage house he owns in back of his house.How will his profit change?

Zipco's economic profit is equal to its

Exhibit 7-11 Movement from point a to point b in Exhibit 7-11 indicates that the firm is experiencing

Which of the following is most likely to be a fixed resource for Paul's Country Fresh Pies, Inc.?

Total fixed cost divided by the level of output yields

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

Which of the following is a short-run adjustment?

Diseconomies of scale are pictured on a graph by the upward-sloping portion of the

Two friends, Diane and Sam, own and run a bar.Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips.Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips.Which of the following represents an implicit cost of operating the bar?

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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