Question 1

Which of the following is not an explicit cost?

Accepted Answer

A)  Salaries. 
B)  Sales taxes. 
C)  Utilities, such as gas and electricity. 
D)  Insurance. 
E)  The firm owner's time. 
A)  Salaries. 
B)  Sales taxes. 
C)  Utilities, such as gas and electricity. 
D)  Insurance. 
E)  The firm owner's time.

Question 2

A firm's average fixed cost curve can never be U-shaped, even if its other average cost curves are U-shaped.

Accepted Answer

A) True 
 B)False

Question 3

During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's:

Accepted Answer

A)  has no fixed costs. 
B)  is in the short run. 
C)  suffers an economic loss. 
D)  earns a large profit. 
A)  has no fixed costs. 
B)  is in the short run. 
C)  suffers an economic loss. 
D)  earns a large profit.

Question 4

The marginal product curve rises when the marginal cost curve rises.

Accepted Answer

A) True 
 B)False

Question 5

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

Accepted Answer

A)  constant. 
B)  falling. 
C)  rising. 
D)  subject to diminishing returns. 
A)  constant. 
B)  falling. 
C)  rising. 
D)  subject to diminishing returns.

Question 6

Exhibit 7-7 Cost schedule for a firm $$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \text { Total Cost } & \text { Marginal Cost } \
\hline 0 & \$ 200 & \
1 & 900 & \
2 & & \$ 900 \
3 & 3,000 & \
\hline
\end{array}$$
-In Exhibit 7-7, by filling in the blanks, it can be determined that the marginal cost of the third unit of output is:

Accepted Answer

A)  0. 
B)  200. 
C)  700. 
D)  1,200. 
E)  2,000. 
A)  0. 
B)  200. 
C)  700. 
D)  1,200. 
E)  2,000.

Question 7

The average fixed cost of a firm equal:

Accepted Answer

A)  implicit costs divided by output. 
B)  explicit costs divided by output. 
C)  total cost minus variable cost. 
D)  total cost minus total variable cost divided by output. 
A)  implicit costs divided by output. 
B)  explicit costs divided by output. 
C)  total cost minus variable cost. 
D)  total cost minus total variable cost divided by output.

Question 8

A farm is able to produce 9,000 pints of strawberries per season on 10 acres. It adds one more acre and is able to produce 12,000 pints per season. The marginal product of land for this farm is:

Accepted Answer

A)  900 pints per acre per year. 
B)  1,000 pints per acre per year. 
C)  3,000 pints per acre per year. 
D)  12,000 pints per acre per year. 
A)  900 pints per acre per year. 
B)  1,000 pints per acre per year. 
C)  3,000 pints per acre per year. 
D)  12,000 pints per acre per year.

Question 9

Exhibit 7-14 Cost curves  
-In Exhibit 7-14, the U-shaped LRAC curve indicates which of the following as quantity increases from 0 to 4,000?

Accepted Answer

A)  Diseconomies of scale; constant returns to scale; economies of scale. 
B)  Constant returns to scale; economies of scale; diseconomies of scale. 
C)  Economies of scale; constant returns to scale; diseconomies of scale. 
D)  Diseconomies of scale; economies of scale; constant returns to scale. 
E)  Economies of scale; diseconomies of scale; constant returns to scale. 
A)  Diseconomies of scale; constant returns to scale; economies of scale. 
B)  Constant returns to scale; economies of scale; diseconomies of scale. 
C)  Economies of scale; constant returns to scale; diseconomies of scale. 
D)  Diseconomies of scale; economies of scale; constant returns to scale. 
E)  Economies of scale; diseconomies of scale; constant returns to scale.

Question 10

Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly describes her monthly economic profit?

Accepted Answer

A)  $100,000. 
B)  $90,000. 
C)  $70,000. 
D)  $30,000. 
E)  $20,000. 
A)  $100,000. 
B)  $90,000. 
C)  $70,000. 
D)  $30,000. 
E)  $20,000.

Question 11

If marginal product is at a maximum, then marginal cost is at a minimum.

Accepted Answer

A) True 
 B)False

Question 12

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

Accepted Answer

A)  constant. 
B)  falling. 
C)  rising. 
D)  none of these. 
A)  constant. 
B)  falling. 
C)  rising. 
D)  none of these.

Question 13

If a firm's marginal cost exceeds its average cost, then its average cost must be rising.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

Fixed costs are best defined as:

Accepted Answer

A)  costs that do not vary with output. 
B)  costs that are at a minimum when output approaches the firm's capacity. 
C)  the amount that one more unit of output adds to total costs. 
D)  costs that decline as output increases. 
A)  costs that do not vary with output. 
B)  costs that are at a minimum when output approaches the firm's capacity. 
C)  the amount that one more unit of output adds to total costs. 
D)  costs that decline as output increases.

Question 16

Exhibit 7-12 Cost schedule for producing pizza $$\begin{array} { | c | c | c | c | } 
\hline \text { Pizzas } & \begin{array} { c } 
\text { Fixed } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Variable } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Cost }
\end{array} \
\hline 0 & \$ & \$ & \$ \
1 &&&48 \
2 &&17  \
3 &&27 \
4 &&&78  \
5 &40 \
6 &&64 \
7 &&80\
\hline
\end{array}$$
-By filling in the blanks in Exhibit 7-12, the marginal cost of the third pizza is shown to be equal to:

Accepted Answer

A)  $10. 
B)  $11. 
C)  $12. 
D)  $13. 
E)  $14. 
A)  $10. 
B)  $11. 
C)  $12. 
D)  $13. 
E)  $14.

Question 17

Which of the following is considered to be a fixed cost of operating an automobile?

Accepted Answer

A)  Gasoline. 
B)  Tires. 
C)  Oil change. 
D)  Maintenance. 
E)  Registration fees. 
A)  Gasoline. 
B)  Tires. 
C)  Oil change. 
D)  Maintenance. 
E)  Registration fees.

Question 18

Marginal product measures the change in:

Accepted Answer

A)  total cost brought about by changing production by one unit. 
B)  product price brought about by changing production by one unit. 
C)  a firm's revenue brought about by changing production by one unit. 
D)  the firm's output brought about by employing one additional unit of input. 
E)  the firm's profit brought about by employing one more input. 
A)  total cost brought about by changing production by one unit. 
B)  product price brought about by changing production by one unit. 
C)  a firm's revenue brought about by changing production by one unit. 
D)  the firm's output brought about by employing one additional unit of input. 
E)  the firm's profit brought about by employing one more input.

Question 19

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys their goods in large quantities and therefore at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices and free parking. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that:

Accepted Answer

A)  consumers are boycotting local retailers. 
B)  Wal-Mart engages in illegal acts of monopolization. 
C)  there are diseconomies of scale in retail sales. 
D)  there are economies of scale in retail sales. 
E)  Wal-Mart is managed by ruthless business people. 
A)  consumers are boycotting local retailers. 
B)  Wal-Mart engages in illegal acts of monopolization. 
C)  there are diseconomies of scale in retail sales. 
D)  there are economies of scale in retail sales. 
E)  Wal-Mart is managed by ruthless business people.

Question 20

Exhibit 7-14 Cost curves  
-In Exhibit 7-14, economies of scale only exist for output levels up to:

Accepted Answer

A)  1,000. 
B)  2,000. 
C)  3,000. 
D)  4,000. 
E)  greater than 4,000. 
A)  1,000. 
B)  2,000. 
C)  3,000. 
D)  4,000. 
E)  greater than 4,000.

Which of the following is not an explicit cost?

A firm's average fixed cost curve can never be U-shaped, even if its other average cost curves are U-shaped.

During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's:

The marginal product curve rises when the marginal cost curve rises.

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

Exhibit 7-7 Cost schedule for a firm Quantity Total Cost Marginal Cost 0 \ 200 1 900 2 \ 900 3 3,000 -In Exhibit 7-7, by filling in the blanks, it can be determined that the marginal cost of the third unit of output is:

The average fixed cost of a firm equal:

A farm is able to produce 9,000 pints of strawberries per season on 10 acres. It adds one more acre and is able to produce 12,000 pints per season. The marginal product of land for this farm is:

Exhibit 7-14 Cost curves -In Exhibit 7-14, the U-shaped LRAC curve indicates which of the following as quantity increases from 0 to 4,000?

If marginal product is at a maximum, then marginal cost is at a minimum.

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

If a firm's marginal cost exceeds its average cost, then its average cost must be rising.

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?

Fixed costs are best defined as:

Exhibit 7-12 Cost schedule for producing pizza Pizzas Fixed Cost Variable Cost Total Cost 0 \ \ \ 1 48 2 17 3 27 4 78 5 40 6 64 7 80 -By filling in the blanks in Exhibit 7-12, the marginal cost of the third pizza is shown to be equal to:

Which of the following is considered to be a fixed cost of operating an automobile?

Marginal product measures the change in:

Exhibit 7-14 Cost curves -In Exhibit 7-14, economies of scale only exist for output levels up to:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

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Exam 7: Production Costs

Which of the following is not an explicit cost?

A firm's average fixed cost curve can never be U-shaped, even if its other average cost curves are U-shaped.

During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's:

The marginal product curve rises when the marginal cost curve rises.

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

Exhibit 7-7 Cost schedule for a firm Quantity Total Cost Marginal Cost 0 \ 200 1 900 2 \ 900 3 3,000 -In Exhibit 7-7, by filling in the blanks, it can be determined that the marginal cost of the third unit of output is:

The average fixed cost of a firm equal:

A farm is able to produce 9,000 pints of strawberries per season on 10 acres. It adds one more acre and is able to produce 12,000 pints per season. The marginal product of land for this farm is:

Exhibit 7-14 Cost curves -In Exhibit 7-14, the U-shaped LRAC curve indicates which of the following as quantity increases from 0 to 4,000?

If marginal product is at a maximum, then marginal cost is at a minimum.

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:

If a firm's marginal cost exceeds its average cost, then its average cost must be rising.

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?

Fixed costs are best defined as:

Exhibit 7-12 Cost schedule for producing pizza Pizzas Fixed Cost Variable Cost Total Cost 0 \ \ \ 1 48 2 17 3 27 4 78 5 40 6 64 7 80 -By filling in the blanks in Exhibit 7-12, the marginal cost of the third pizza is shown to be equal to:

Which of the following is considered to be a fixed cost of operating an automobile?

Marginal product measures the change in:

Exhibit 7-14 Cost curves -In Exhibit 7-14, economies of scale only exist for output levels up to:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

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