Question 1

A downward sloping marginal product of labor curve demonstrates the law of diminishing marginal returns.

Accepted Answer

A) True 
 B)False

Question 2

State the law of diminishing returns. How do diminishing returns differ from diseconomies of scale? Be sure to define diseconomies of scale in your answer.

Accepted Answer

The law of diminishing returns states th

Question 3

Diseconomies of scale occur when

Accepted Answer

A)  long-run average costs rise as a firm increases its output. 
B)  long-run average costs fall as a firm expands its plant size. 
C)  short-run average costs rise as a firm expands its plant size. 
D)  long-run labor costs rise as a firm increases its output. 
A)  long-run average costs rise as a firm increases its output. 
B)  long-run average costs fall as a firm expands its plant size. 
C)  short-run average costs rise as a firm expands its plant size. 
D)  long-run labor costs rise as a firm increases its output.

Question 4

A characteristic of the long run is

Accepted Answer

A)  there are fixed inputs. 
B)  all inputs can be varied. 
C)  plant capacity cannot be increased or decreased. 
D)  there are both fixed and variable inputs 
A)  there are fixed inputs. 
B)  all inputs can be varied. 
C)  plant capacity cannot be increased or decreased. 
D)  there are both fixed and variable inputs

Question 5

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations.
Total revenue $120,000
Cost of labor 40,000
Cost of materials 15,000
Equipment rental 5,000
a. Calculate her economic costs for the first year.
b. Calculate her accounting costs for the first year.
c. Calculate her implicit costs for the first year.
d. Sally tells you that she would really like to move to a location closer to town but she decided against it because "right now I don't pay any rent and it will cost me $10,000 a year to rent near town." Do you agree with her reasoning?

Accepted Answer

a. $121,000 = 40,000 (labor) + 15,000 (m

Question 6

The difference between technology and technological change is that

Accepted Answer

A)  technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. 
B)  technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production. 
C)  technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques. 
D)  technology involves the use of capital equipment while technological change requires the use of brain power. 
A)  technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. 
B)  technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production. 
C)  technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques. 
D)  technology involves the use of capital equipment while technological change requires the use of brain power.

Question 7

If another worker adds 9 units of output to a group of workers who had an average product of 7 units, then the average product of labor

Accepted Answer

A)  will remain the same. 
B)  will increase. 
C)  will decrease. 
D)  and what will happen to it cannot be determined. 
A)  will remain the same. 
B)  will increase. 
C)  will decrease. 
D)  and what will happen to it cannot be determined.

Question 8

Figure 11-6   Figure 11-6 contains information about the short run cost structure of a firm.
-Refer to Figure 11-6. In the figure above, which letter represents the average total cost curve?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 9

Table 11-7
   Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 11-7. What is the average variable cost per unit of production when the firm produces 90 lanterns?

Accepted Answer

A)  $490 
B)  $33.67 
C)  $7.67 
D)  $5.44 
A)  $490 
B)  $33.67 
C)  $7.67 
D)  $5.44

Question 10

In the short run, if average product is at its maximum, then average variable cost is at its minimum.

Accepted Answer

A) True 
 B)False

Question 11

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

Accepted Answer

A)  Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. 
B)  as Toyota expanded its capacity, it experienced diseconomies of scale. 
C)  Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. 
D)  high demand for Toyota's cars prevented the company from focusing on its strength: auto design. 
A)  Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. 
B)  as Toyota expanded its capacity, it experienced diseconomies of scale. 
C)  Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. 
D)  high demand for Toyota's cars prevented the company from focusing on its strength: auto design.

Question 12

The explicit cost of production is also called

Accepted Answer

A)  variable cost. 
B)  accounting cost. 
C)  direct cost. 
D)  overhead cost. 
A)  variable cost. 
B)  accounting cost. 
C)  direct cost. 
D)  overhead cost.

Question 13

If the average variable cost curve is above the marginal cost curve, then

Accepted Answer

A)  marginal costs must be decreasing. 
B)  average variable costs must be increasing. 
C)  marginal costs must be increasing. 
D)  marginal costs can be either increasing or decreasing. 
A)  marginal costs must be decreasing. 
B)  average variable costs must be increasing. 
C)  marginal costs must be increasing. 
D)  marginal costs can be either increasing or decreasing.

Question 14

Figure 11-4  
-Refer to Figure 11-4. What happens to the average fixed cost of production when the firm increases output from 150 to 200?

Accepted Answer

A)  It remains constant. 
B)  It rises. 
C)  It falls. 
D)  It could rise or fall depending on what happens to total cost. 
A)  It remains constant. 
B)  It rises. 
C)  It falls. 
D)  It could rise or fall depending on what happens to total cost.

Question 15

Table 11-3
  
-Refer to Table 11-3. The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes. The capital used to produce the boxes is fixed. The average product of labor will equal 66 boxes when Manny hires

Accepted Answer

A)  the second worker. 
B)  the third worker. 
C)  the fourth worker. 
D)  the fifth worker. 
A)  the second worker. 
B)  the third worker. 
C)  the fourth worker. 
D)  the fifth worker.

Question 16

Which of the following statements is true?

Accepted Answer

A)  As output increases, average fixed cost becomes smaller and smaller. 
B)  Average fixed cost does not change as output increases. 
C)  The marginal cost curve intersects the average fixed cost curve at its minimum point. 
D)  When marginal cost is greater than average fixed cost, average fixed cost increases. 
A)  As output increases, average fixed cost becomes smaller and smaller. 
B)  Average fixed cost does not change as output increases. 
C)  The marginal cost curve intersects the average fixed cost curve at its minimum point. 
D)  When marginal cost is greater than average fixed cost, average fixed cost increases.

Question 17

If production displays economies of scale, the long-run average cost curve is

Accepted Answer

A)  above the short-run average total cost curve. 
B)  downward sloping. 
C)  upward sloping. 
D)  below the long-run marginal cost curve. 
A)  above the short-run average total cost curve. 
B)  downward sloping. 
C)  upward sloping. 
D)  below the long-run marginal cost curve.

Question 18

Which of the following is an example of positive technological change?

Accepted Answer

A)  A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. 
B)  A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. 
C)  A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. 
D)  A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day. 
A)  A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. 
B)  A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. 
C)  A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. 
D)  A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

Question 19

In economics, technology only refers to the development of new products.

Accepted Answer

A) True 
 B)False

Question 20

If the marginal cost curve is below the average variable cost curve, then

Accepted Answer

A)  average variable cost is increasing. 
B)  average variable cost is decreasing. 
C)  marginal cost must be decreasing. 
D)  average variable cost could either be increasing or decreasing. 
A)  average variable cost is increasing. 
B)  average variable cost is decreasing. 
C)  marginal cost must be decreasing. 
D)  average variable cost could either be increasing or decreasing.

Exam 11: Technology, Production, and Costs

A downward sloping marginal product of labor curve demonstrates the law of diminishing marginal returns.

State the law of diminishing returns. How do diminishing returns differ from diseconomies of scale? Be sure to define diseconomies of scale in your answer.

Diseconomies of scale occur when

A characteristic of the long run is

The difference between technology and technological change is that

If another worker adds 9 units of output to a group of workers who had an average product of 7 units, then the average product of labor

Figure 11-6 Figure 11-6 contains information about the short run cost structure of a firm. -Refer to Figure 11-6. In the figure above, which letter represents the average total cost curve?

Table 11-7 Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights. -Refer to Table 11-7. What is the average variable cost per unit of production when the firm produces 90 lanterns?

In the short run, if average product is at its maximum, then average variable cost is at its minimum.

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

The explicit cost of production is also called

If the average variable cost curve is above the marginal cost curve, then

Figure 11-4 -Refer to Figure 11-4. What happens to the average fixed cost of production when the firm increases output from 150 to 200?

Which of the following statements is true?

If production displays economies of scale, the long-run average cost curve is

Which of the following is an example of positive technological change?

In economics, technology only refers to the development of new products.

If the marginal cost curve is below the average variable cost curve, then

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

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The Economics of Health Care

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Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

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Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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Aggregate Expenditure and Output in the Short Run

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Money, Banks, and the Federal Reserve System

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Macroeconomics in an Open Economy

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