Question 1

If a firm triples all of its inputs and its output doubles, it is said to be experiencing

Accepted Answer

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

Question 2

As output expands, the slope of the average total cost curve

Accepted Answer

A) stays negative throughout 
B) stays positive throughout 
C) is first negative and then positive 
D) is first positive and then negative 
E) is constant 
A) stays negative throughout 
B) stays positive throughout 
C) is first negative and then positive 
D) is first positive and then negative 
E) is constant

Question 3

The marginal cost curve intersects the average total cost curve (ATC)

Accepted Answer

A) at the ATC's minimum point 
B) only when the ATC is sloping upward 
C) at the ATC's maximum point 
D) only when the ATC is sloping downward 
E) when the ATC intersects the fixed cost curve 
A) at the ATC's minimum point 
B) only when the ATC is sloping upward 
C) at the ATC's maximum point 
D) only when the ATC is sloping downward 
E) when the ATC intersects the fixed cost curve

Question 4

Suppose a soccer coach has been making $25, 000 per year but gives up his coaching job in order to make lace doilies.If his revenue from the sale of these doilies is $50, 000 and his materials cost $20, 000, then his economic profit is

Accepted Answer

A) $5, 000 
B) $25, 000 
C) $30, 000 
D) $50, 000 
E) $80, 000 
A) $5, 000 
B) $25, 000 
C) $30, 000 
D) $50, 000 
E) $80, 000

Question 5

Which of the following is not an explicit cost?

Accepted Answer

A) salaries 
B) sales taxes 
C) the cost of utilities, such as gas and electricity 
D) insurance premiums 
E) the value of a firm owner's time 
A) salaries 
B) sales taxes 
C) the cost of utilities, such as gas and electricity 
D) insurance premiums 
E) the value of a firm owner's time

Question 6

If General Motors is earning only a normal profit,

Accepted Answer

A) it is making economic profit 
B) it is breaking even 
C) it is suffering an economic loss 
D) it is covering only explicit costs 
E) it is covering only implicit costs 
A) it is making economic profit 
B) it is breaking even 
C) it is suffering an economic loss 
D) it is covering only explicit costs 
E) it is covering only implicit costs

Question 7

Exhibit 7-12   For the total product curve in Exhibit 7-12, the marginal product between points a and b is:

Accepted Answer

A) 5 
B) 10 
C) 20 
D) 30 
E) unable to be determined 
A) 5 
B) 10 
C) 20 
D) 30 
E) unable to be determined

Question 8

The opportunity cost of a resource

Accepted Answer

A) includes both explicit and implicit cost 
B) includes explicit cost only 
C) includes implicit cost only 
D) is equal to the market price of the resource 
E) is not related to the market price of the resource 
A) includes both explicit and implicit cost 
B) includes explicit cost only 
C) includes implicit cost only 
D) is equal to the market price of the resource 
E) is not related to the market price of the resource

Question 9

Exhibit 7-6   In Exhibit 7-6, which costs are fixed costs?

Accepted Answer

A) rent, labor costs, and material costs 
B) rent and labor costs 
C) rent and material costs 
D) labor and material costs 
E) rent only 
A) rent, labor costs, and material costs 
B) rent and labor costs 
C) rent and material costs 
D) labor and material costs 
E) rent only

Question 10

Exhibit 7-13 The Total Product of Labor   Given the information in Exhibit 7-13, what is the marginal product of the fourth unit of labor?

Accepted Answer

A) 0 units of output 
B) less than the marginal product of the third unit of labor 
C) more than 3 units of output 
D) 5 units of output 
E) cannot be determined from the graph of total product 
A) 0 units of output 
B) less than the marginal product of the third unit of labor 
C) more than 3 units of output 
D) 5 units of output 
E) cannot be determined from the graph of total product

Question 11

In the long run, all inputs are variable.

Accepted Answer

A) True 
 B)False

Question 12

At a given rate of output, marginal cost equals the slope of the

Accepted Answer

A) long-run average cost curve 
B) short-run average total cost curve 
C) planning curve 
D) total cost curve 
E) average variable cost curve 
A) long-run average cost curve 
B) short-run average total cost curve 
C) planning curve 
D) total cost curve 
E) average variable cost curve

Question 13

Exhibit 7-13 The Total Product of Labor   Given the information in Exhibit 7-13, at what point do negative marginal returns set in?

Accepted Answer

A) after the first unit of labor 
B) after the fourth unit of labor 
C) after the fifth unit of labor 
D) after the sixth unit of labor 
E) after the eighth unit of labor 
A) after the first unit of labor 
B) after the fourth unit of labor 
C) after the fifth unit of labor 
D) after the sixth unit of labor 
E) after the eighth unit of labor

Question 14

If marginal cost exceeds average variable cost,

Accepted Answer

A) average variable cost is negative 
B) average variable cost is increasing 
C) marginal cost is greater than average total cost 
D) average variable cost is decreasing 
E) average fixed cost is increasing 
A) average variable cost is negative 
B) average variable cost is increasing 
C) marginal cost is greater than average total cost 
D) average variable cost is decreasing 
E) average fixed cost is increasing

Question 15

The average total cost curve and the average variable cost curve

Accepted Answer

A) are closer together as output increases, with average variable cost reaching its minimum level first 
B) are closer together as output increases, with average total cost reaching its minimum level first 
C) are farther apart as output increases, with average variable cost reaching its minimum level first 
D) are farther apart as output increases, with average total cost reaching its minimum level first 
E) are parallel to each other, and reach their minimum levels at the same rate of output 
A) are closer together as output increases, with average variable cost reaching its minimum level first 
B) are closer together as output increases, with average total cost reaching its minimum level first 
C) are farther apart as output increases, with average variable cost reaching its minimum level first 
D) are farther apart as output increases, with average total cost reaching its minimum level first 
E) are parallel to each other, and reach their minimum levels at the same rate of output

Question 16

Exhibit 7-5   In Exhibit 7-5, what is the marginal cost of the 15th unit of output?

Accepted Answer

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

Question 17

Amanda, age 6, opens a lemonade stand.She makes all the lemonade from a mix she found in her parents' pantry.Her stand is an old box she found in the garage.The pitcher and paper cups were taken from the kitchen.Which of the following is true?

Accepted Answer

A) The opportunity cost of the lemonade is zero. 
B) The only opportunity cost of the lemonade is Amanda's time. 
C) Amanda's explicit costs are zero. 
D) The implicit costs of Amanda's lemonade are zero. 
E) Whatever revenue Amanda gets will be pure economic profit. 
A) The opportunity cost of the lemonade is zero. 
B) The only opportunity cost of the lemonade is Amanda's time. 
C) Amanda's explicit costs are zero. 
D) The implicit costs of Amanda's lemonade are zero. 
E) Whatever revenue Amanda gets will be pure economic profit.

Question 18

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

Accepted Answer

A) $0 
B) $2.00 
C) $4.30 
D) $4.60 
E) cannot be determined from the total cost curve 
A) $0 
B) $2.00 
C) $4.30 
D) $4.60 
E) cannot be determined from the total cost curve

Question 19

Economies of scale occur where

Accepted Answer

A) long-run average cost falls as new firms enter the industry 
B) short-run average cost falls as new firms enter the industry 
C) long-run average cost falls as one firm expands plant size 
D) short-run average cost falls as one firm expands plant size 
E) long-run average cost rises as one firm expands plant size 
A) long-run average cost falls as new firms enter the industry 
B) short-run average cost falls as new firms enter the industry 
C) long-run average cost falls as one firm expands plant size 
D) short-run average cost falls as one firm expands plant size 
E) long-run average cost rises as one firm expands plant size

Question 20

Which of the following would not be considered a fixed cost for a law firm?

Accepted Answer

A) paper for the photocopy machine 
B) property taxes 
C) insurance premiums 
D) license fees 
E) interest on loans 
A) paper for the photocopy machine 
B) property taxes 
C) insurance premiums 
D) license fees 
E) interest on loans

Exam 7: Production and Cost in the Firm

If a firm triples all of its inputs and its output doubles, it is said to be experiencing

As output expands, the slope of the average total cost curve

The marginal cost curve intersects the average total cost curve (ATC)

Suppose a soccer coach has been making $25, 000 per year but gives up his coaching job in order to make lace doilies.If his revenue from the sale of these doilies is $50, 000 and his materials cost $20, 000, then his economic profit is

Which of the following is not an explicit cost?

If General Motors is earning only a normal profit,

Exhibit 7-12 For the total product curve in Exhibit 7-12, the marginal product between points a and b is:

The opportunity cost of a resource

Exhibit 7-6 In Exhibit 7-6, which costs are fixed costs?

Exhibit 7-13 The Total Product of Labor Given the information in Exhibit 7-13, what is the marginal product of the fourth unit of labor?

In the long run, all inputs are variable.

At a given rate of output, marginal cost equals the slope of the

Exhibit 7-13 The Total Product of Labor Given the information in Exhibit 7-13, at what point do negative marginal returns set in?

If marginal cost exceeds average variable cost,

The average total cost curve and the average variable cost curve

Exhibit 7-5 In Exhibit 7-5, what is the marginal cost of the 15th unit of output?

Amanda, age 6, opens a lemonade stand.She makes all the lemonade from a mix she found in her parents' pantry.Her stand is an old box she found in the garage.The pitcher and paper cups were taken from the kitchen.Which of the following is true?

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

Economies of scale occur where

Which of the following would not be considered a fixed cost for a law firm?

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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