Question 1

Describe the Alchian and Demsetz theory of why firms exist. How does this differ from the Coase theory of why firms exist?

Accepted Answer

Armen Alchian and Harold Demsetz argue t

Question 2

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

Accepted Answer

A)  $80; $20 
B)  $80; $30 
C)  $30; $30 
D)  $130; $50 
E)  There is not enough information to answer this question. 
A)  $80; $20 
B)  $80; $30 
C)  $30; $30 
D)  $130; $50 
E)  There is not enough information to answer this question.

Question 3

Suppose that a firm produces hard candies using both machines and labor,and that its quantity of machines is currently fixed but it can vary the number of workers.As more workers are added to operate the machines,output increases.Is this a refutation of the law of diminishing marginal returns?

Accepted Answer

A)  Yes, because the law definitely states that output will decrease as more workers are added. 
B)  No, because we must be observing output in the long run if the stated scenario is occurring. 
C)  Yes, because the only way that this could occur is if the number of machines being used is also increasing. 
D)  No, because it is entirely possible for output to increase even when the law is in operation. 
A)  Yes, because the law definitely states that output will decrease as more workers are added. 
B)  No, because we must be observing output in the long run if the stated scenario is occurring. 
C)  Yes, because the only way that this could occur is if the number of machines being used is also increasing. 
D)  No, because it is entirely possible for output to increase even when the law is in operation.

Question 4

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

Accepted Answer

A)  $100; $50 
B)  $25; $68 
C)  $200; $200 
D)  $66.67; $50 
E)  There is not enough information to answer this question. 
A)  $100; $50 
B)  $25; $68 
C)  $200; $200 
D)  $66.67; $50 
E)  There is not enough information to answer this question.

Question 5

Exhibit 22-8
  
-Exhibit 22-8 shows how output varies with the only variable input used in its production.If the cost of a unit of labor is $500,what is the approximate marginal cost of the 185th unit of output?

Accepted Answer

A)  $2.50 
B)  $16.67 
C)  $12.50 
D)  $50.00 
E)  $100.00 
A)  $2.50 
B)  $16.67 
C)  $12.50 
D)  $50.00 
E)  $100.00

Question 6

Exhibit 22-8
  
-Exhibit 22-8 shows how output varies with the only variable input used in its production.Marginal physical product of the fifth unit of labor is

Accepted Answer

A)  0. 
B)  20. 
C)  50. 
D)  172. 
A)  0. 
B)  20. 
C)  50. 
D)  172.

Question 7

Situation 22-1
  
-Refer to Situation 22-1.What will Diane's total variable costs be if she sells 36,500 donuts in one year?

Accepted Answer

A)  $10,950 
B)  $18,450 
C)  $22,080 
D)  $12,500 
A)  $10,950 
B)  $18,450 
C)  $22,080 
D)  $12,500

Question 8

As the marginal physical product of labor rises in the U.S.,the marginal cost of goods produced in the U.S.rises which makes it harder for U.S.producers to compete in the global marketplace.

Accepted Answer

A) True 
 B)False

Question 9

If inputs are increased by 10 percent and output increases by 10 percent,then __________ are said to exist.

Accepted Answer

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

Question 10

If labor is the variable input,then marginal cost equals

Accepted Answer

A)  MPP divided by the wage rate. 
B)  average variable (labor) costs divided by MPP. 
C)  average variable (labor) costs multiplied by MPP. 
D)  the wage rate divided by MPP. 
E)  the wage rate multiplied by MPP. 
A)  MPP divided by the wage rate. 
B)  average variable (labor) costs divided by MPP. 
C)  average variable (labor) costs multiplied by MPP. 
D)  the wage rate divided by MPP. 
E)  the wage rate multiplied by MPP.

Question 11

Situation 22-1
  
-Refer to Situation 22-l.What will Diane's approximate average fixed costs be if she sells 36,500 donuts in one year?

Accepted Answer

A)  $0.30 
B)  $0.088 
C)  $0.138 
D)  $0.55 
A)  $0.30 
B)  $0.088 
C)  $0.138 
D)  $0.55

Question 12

If a firm is earning an economic profit,it is necessarily earning an accounting profit,too.

Accepted Answer

A) True 
 B)False

Question 13

When a firm is experiencing constant returns to scale,it follows that

Accepted Answer

A)  unit costs are rising. 
B)  average total cost is rising. 
C)  unit costs are constant. 
D)  average total cost is constant. 
E)  c and d 
A)  unit costs are rising. 
B)  average total cost is rising. 
C)  unit costs are constant. 
D)  average total cost is constant. 
E)  c and d

Question 14

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

Accepted Answer

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

Question 15

Situation 22-4
  
-Refer to Situation 22-4. What are Joe's explicit costs?

Accepted Answer

A)  $125,000 
B)  $175,000 
C)  $35,000 
D)  $200,000 
E)  $50,000 
A)  $125,000 
B)  $175,000 
C)  $35,000 
D)  $200,000 
E)  $50,000

Question 16

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

Accepted Answer

A)  $100; $50 
B)  $25; $32.50 
C)  $500; $40 
D)  $50; $32 
E)  There is not enough information to answer this question. 
A)  $100; $50 
B)  $25; $32.50 
C)  $500; $40 
D)  $50; $32 
E)  There is not enough information to answer this question.

Question 17

The law of diminishing marginal returns helps to explain why the marginal cost curve typically has a downward-sloping portion.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 22-2
  
-Refer to Exhibit 22-2.What is the average total cost of producing 140 units of output?

Accepted Answer

A)  $1.79 
B)  $7.33 
C)  $4.23 
D)  $10.00 
E)  There is not enough information provided to answer the question. 
A)  $1.79 
B)  $7.33 
C)  $4.23 
D)  $10.00 
E)  There is not enough information provided to answer the question.

Question 19

Which of the following statements is false?

Accepted Answer

A)  Money must change hands before a cost can be incurred. 
B)  No monetary payment takes place when an implicit cost is incurred. 
C)  Costs may be either explicit costs or implicit costs. 
D)  Cost implies that a sacrifice has been made. 
A)  Money must change hands before a cost can be incurred. 
B)  No monetary payment takes place when an implicit cost is incurred. 
C)  Costs may be either explicit costs or implicit costs. 
D)  Cost implies that a sacrifice has been made.

Question 20

Suppose a given marginal cost curve starts out downward sloping and at some level of output turns upward and becomes upward sloping.The point at which it turns upward is the point at which

Accepted Answer

A)  marginal physical product increases. 
B)  total cost rises. 
C)  average fixed cost declines. 
D)  average variable cost is below marginal cost. 
E)  diminishing marginal returns set in. 
A)  marginal physical product increases. 
B)  total cost rises. 
C)  average fixed cost declines. 
D)  average variable cost is below marginal cost. 
E)  diminishing marginal returns set in.

Exam 22: Production and Costs

Describe the Alchian and Demsetz theory of why firms exist. How does this differ from the Coase theory of why firms exist?

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

Suppose that a firm produces hard candies using both machines and labor,and that its quantity of machines is currently fixed but it can vary the number of workers.As more workers are added to operate the machines,output increases.Is this a refutation of the law of diminishing marginal returns?

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

Exhibit 22-8 -Exhibit 22-8 shows how output varies with the only variable input used in its production.If the cost of a unit of labor is $500,what is the approximate marginal cost of the 185th unit of output?

Exhibit 22-8 -Exhibit 22-8 shows how output varies with the only variable input used in its production.Marginal physical product of the fifth unit of labor is

Situation 22-1 -Refer to Situation 22-1.What will Diane's total variable costs be if she sells 36,500 donuts in one year?

As the marginal physical product of labor rises in the U.S.,the marginal cost of goods produced in the U.S.rises which makes it harder for U.S.producers to compete in the global marketplace.

If inputs are increased by 10 percent and output increases by 10 percent,then __________ are said to exist.

If labor is the variable input,then marginal cost equals

Situation 22-1 -Refer to Situation 22-l.What will Diane's approximate average fixed costs be if she sells 36,500 donuts in one year?

If a firm is earning an economic profit,it is necessarily earning an accounting profit,too.

When a firm is experiencing constant returns to scale,it follows that

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

Situation 22-4 -Refer to Situation 22-4. What are Joe's explicit costs?

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

The law of diminishing marginal returns helps to explain why the marginal cost curve typically has a downward-sloping portion.

Exhibit 22-2 -Refer to Exhibit 22-2.What is the average total cost of producing 140 units of output?

Which of the following statements is false?

Suppose a given marginal cost curve starts out downward sloping and at some level of output turns upward and becomes upward sloping.The point at which it turns upward is the point at which

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters