Question 1

The law of diminishing marginal returns states that as ever larger amounts of a variable input are combined with

Accepted Answer

A)  fixed inputs, the marginal physical product of the variable input rises. 
B)  other variable inputs, the marginal physical product of the variable input declines. 
C)  fixed inputs, eventually the marginal physical product of the variable input declines. 
D)  other variable inputs, eventually the marginal physical product of the variable input declines. 
A)  fixed inputs, the marginal physical product of the variable input rises. 
B)  other variable inputs, the marginal physical product of the variable input declines. 
C)  fixed inputs, eventually the marginal physical product of the variable input declines. 
D)  other variable inputs, eventually the marginal physical product of the variable input declines. C

Question 2

Economic profit is the difference between total revenue and implicit costs.

Accepted Answer

A) True 
 B)False  False

Question 3

If a firm earns normal profit,then it has generated revenues

Accepted Answer

A)  equal to the sum of implicit and explicit costs. 
B)  greater than total opportunity costs. 
C)  sufficient to cover explicit costs, but not implicit costs. 
D)  sufficient to cover implicit costs, but not explicit costs. 
A)  equal to the sum of implicit and explicit costs. 
B)  greater than total opportunity costs. 
C)  sufficient to cover explicit costs, but not implicit costs. 
D)  sufficient to cover implicit costs, but not explicit costs. A

Question 4

Exhibit 22-2
  
-Refer to Exhibit 22-2.What is the average variable cost of producing 90 units of output?

Accepted Answer

A)  $1.00 
B)  $1.17 
C)  $1.59 
D)  $1.44 
E)  There is not enough information provided to answer the question. 
A)  $1.00 
B)  $1.17 
C)  $1.59 
D)  $1.44 
E)  There is not enough information provided to answer the question.

Question 5

The owner of a firm signs a binding one-year lease on a factory for $10,000 rent a month and pays the first month's rent.The $10,000 rent is

Accepted Answer

A)  a fixed cost but not a sunk cost. 
B)  a sunk cost but not a fixed cost. 
C)  both a fixed cost and a sunk cost. 
D)  neither a fixed cost nor a sunk cost. 
E)  none of the above 
A)  a fixed cost but not a sunk cost. 
B)  a sunk cost but not a fixed cost. 
C)  both a fixed cost and a sunk cost. 
D)  neither a fixed cost nor a sunk cost. 
E)  none of the above

Question 6

Situation 22-4
  
-Refer to Situation 22-4. What are Joe's economic profits?

Accepted Answer

A)  $0 
B)  $25,000 
C)  -$25,000 
D)  $40,000 
E)  $75,000 
A)  $0 
B)  $25,000 
C)  -$25,000 
D)  $40,000 
E)  $75,000

Question 7

Exhibit 22-3
  
-Refer to Exhibit 22-3.What level of output exhibits the lowest average total cost?

Accepted Answer

A)  10 units 
B)  25 units 
C)  45 units 
D)  60 units 
E)  70 units 
A)  10 units 
B)  25 units 
C)  45 units 
D)  60 units 
E)  70 units

Question 8

Exhibit 22-4
  
-Refer to Exhibit 22-4.Curve C is a(n)__________ cost curve.

Accepted Answer

A)  marginal 
B)  average variable 
C)  average total 
D)  average fixed 
A)  marginal 
B)  average variable 
C)  average total 
D)  average fixed

Question 9

The change in total cost that results from a change in output is __________ cost.

Accepted Answer

A)  average fixed 
B)  average variable 
C)  average total 
D)  marginal 
A)  average fixed 
B)  average variable 
C)  average total 
D)  marginal

Question 10

Which of the following statements is true?

Accepted Answer

A)  In the short run, there are no fixed costs, only variable costs. 
B)  In the short run, there are fixed and variable costs, but in the long run there are only fixed costs. 
C)  In the short run, there are fixed and variable costs, but fixed costs are the only costs a firm is concerned with. 
D)  In the long run, there are no costs, fixed or variable. 
E)  none of the above 
A)  In the short run, there are no fixed costs, only variable costs. 
B)  In the short run, there are fixed and variable costs, but in the long run there are only fixed costs. 
C)  In the short run, there are fixed and variable costs, but fixed costs are the only costs a firm is concerned with. 
D)  In the long run, there are no costs, fixed or variable. 
E)  none of the above

Question 11

Average variable cost equals

Accepted Answer

A)  average total cost minus average fixed cost. 
B)  total variable cost divided by the change in output. 
C)  total variable cost divided by output. 
D)  price of the variable input times the quantity of the variable input. 
E)  a and c 
A)  average total cost minus average fixed cost. 
B)  total variable cost divided by the change in output. 
C)  total variable cost divided by output. 
D)  price of the variable input times the quantity of the variable input. 
E)  a and c

Question 12

Exhibit 22-13
  
-Refer to Exhibit 22-13. What dollar amounts go in blanks (P)and (Q)?

Accepted Answer

A)  $120; $125 
B)  $10; 95 
C)  $30; $80 
D)  $93.33; $82.50 
E)  There is not enough information to answer this question. 
A)  $120; $125 
B)  $10; 95 
C)  $30; $80 
D)  $93.33; $82.50 
E)  There is not enough information to answer this question.

Question 13

Diseconomies of scale are said to exist when inputs are increased by some percentage and output increases by a(n)__________ percentage,causing unit costs to __________.

Accepted Answer

A)  greater; fall 
B)  smaller; fall 
C)  greater; rise 
D)  smaller; rise 
E)  equal; fall 
A)  greater; fall 
B)  smaller; fall 
C)  greater; rise 
D)  smaller; rise 
E)  equal; fall

Question 14

The law of diminishing marginal returns holds for a situation in which

Accepted Answer

A)  all inputs are variable. 
B)  all inputs are fixed. 
C)  some inputs are variable and some inputs are fixed. 
D)  all inputs are increased in the same proportion. 
A)  all inputs are variable. 
B)  all inputs are fixed. 
C)  some inputs are variable and some inputs are fixed. 
D)  all inputs are increased in the same proportion.

Question 15

Exhibit 22-1
  
-Refer to Exhibit 22-l.The numbers that go in blanks (C)and (D)are,respectively,

Accepted Answer

A)  25 and 20. 
B)  20 and 22. 
C)  25 and 24. 
D)  22 and 20. 
E)  none of the above 
A)  25 and 20. 
B)  20 and 22. 
C)  25 and 24. 
D)  22 and 20. 
E)  none of the above

Question 16

If the marginal cost curve for a firm first declines and then rises,it follows that the MPP of the variable input

Accepted Answer

A)  is constant. 
B)  first declines and then rises. 
C)  first rises and then declines. 
D)  continually declines. 
E)  none of the above 
A)  is constant. 
B)  first declines and then rises. 
C)  first rises and then declines. 
D)  continually declines. 
E)  none of the above

Question 17

The long-run average total cost (LRATC)curve shows the

Accepted Answer

A)  lowest average variable cost at which the firm can produce any given level of output. 
B)  lowest unit cost at which the firm can produce any given level of output. 
C)  highest average fixed cost at which the firm can produce any given level of output. 
D)  lowest marginal cost at which the firm can produce any given level of output. 
E)  none of the above 
A)  lowest average variable cost at which the firm can produce any given level of output. 
B)  lowest unit cost at which the firm can produce any given level of output. 
C)  highest average fixed cost at which the firm can produce any given level of output. 
D)  lowest marginal cost at which the firm can produce any given level of output. 
E)  none of the above

Question 18

The reason marginal cost is equal to the change in total cost divided by the change in output,or the change in total variable cost divided by the change in output,is because

Accepted Answer

A)  total variable cost rises as output rises. 
B)  of the law of diminishing marginal returns. 
C)  total fixed cost does not change as output changes. 
D)  total cost does not change as output changes. 
E)  none of the above 
A)  total variable cost rises as output rises. 
B)  of the law of diminishing marginal returns. 
C)  total fixed cost does not change as output changes. 
D)  total cost does not change as output changes. 
E)  none of the above

Question 19

Suppose that minimum efficient scale as a percentage of U.S.consumption is 5 percent in industry X and it is 10 percent in industry Y.It follows that we would expect to find

Accepted Answer

A)  fewer firms in industry Y than X. 
B)  fewer firms in industry X than Y. 
C)  bigger firms in industry Y than X. 
D)  bigger firms in industry X than Y. 
E)  none of the above 
A)  fewer firms in industry Y than X. 
B)  fewer firms in industry X than Y. 
C)  bigger firms in industry Y than X. 
D)  bigger firms in industry X than Y. 
E)  none of the above

Question 20

Exhibit 22-11
  
-Refer to Exhibit 22-11.Average total cost of the sixth unit of output is

Accepted Answer

A)  $50. 
B)  $100. 
C)  $300. 
D)  $90.83. 
A)  $50. 
B)  $100. 
C)  $300. 
D)  $90.83.

Exam 22: Production and Costs

The law of diminishing marginal returns states that as ever larger amounts of a variable input are combined with

Economic profit is the difference between total revenue and implicit costs.

If a firm earns normal profit,then it has generated revenues

Exhibit 22-2 -Refer to Exhibit 22-2.What is the average variable cost of producing 90 units of output?

The owner of a firm signs a binding one-year lease on a factory for $10,000 rent a month and pays the first month's rent.The $10,000 rent is

Situation 22-4 -Refer to Situation 22-4. What are Joe's economic profits?

Exhibit 22-3 -Refer to Exhibit 22-3.What level of output exhibits the lowest average total cost?

Exhibit 22-4 -Refer to Exhibit 22-4.Curve C is a(n)__________ cost curve.

The change in total cost that results from a change in output is __________ cost.

Which of the following statements is true?

Average variable cost equals

Exhibit 22-13 -Refer to Exhibit 22-13. What dollar amounts go in blanks (P)and (Q)?

Diseconomies of scale are said to exist when inputs are increased by some percentage and output increases by a(n)__________ percentage,causing unit costs to __________.

The law of diminishing marginal returns holds for a situation in which

Exhibit 22-1 -Refer to Exhibit 22-l.The numbers that go in blanks (C)and (D)are,respectively,

If the marginal cost curve for a firm first declines and then rises,it follows that the MPP of the variable input

The long-run average total cost (LRATC)curve shows the

The reason marginal cost is equal to the change in total cost divided by the change in output,or the change in total variable cost divided by the change in output,is because

Suppose that minimum efficient scale as a percentage of U.S.consumption is 5 percent in industry X and it is 10 percent in industry Y.It follows that we would expect to find

Exhibit 22-11 -Refer to Exhibit 22-11.Average total cost of the sixth unit of output is

What Economics Is About

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Macroeconomic Measurements: Prices and Unemployment

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Diseconomies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) percentage,causing unit costs to .