Question 1

Average variable cost will decrease if __________.

Accepted Answer

marginal c

Question 2

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

Accepted Answer

A) the $20 million payment that the firm pays each year for accounting services 
B) the cost of the steel that is used in producing automobiles 
C) the rent that the firm pays for office space in a suburb of St. Louis 
D) All of the above are correct. 
A) the $20 million payment that the firm pays each year for accounting services 
B) the cost of the steel that is used in producing automobiles 
C) the rent that the firm pays for office space in a suburb of St. Louis 
D) All of the above are correct.

Question 3

If a firm produces nothing, it still incurs its fixed costs.

Accepted Answer

A) True 
 B)False

Question 4

Table 13-13
Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month.  
-Refer to Table 13-13. How many instructional modules are produced when marginal cost is $1,300?

Accepted Answer

A) 4 
B) 5 
C) 7 
D) 8 
A) 4 
B) 5 
C) 7 
D) 8

Question 5

A firm that wants to achieve economies of scale could do so by

Accepted Answer

A) assigning limited tasks to its employees, so they can master those tasks. 
B) employing a smaller number of workers. 
C) producing a smaller quantity of output. 
D) producing an output level higher than the efficient scale. 
A) assigning limited tasks to its employees, so they can master those tasks. 
B) employing a smaller number of workers. 
C) producing a smaller quantity of output. 
D) producing an output level higher than the efficient scale.

Question 6

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.

Accepted Answer

A) True 
 B)False

Question 7

Figure 13-3  
-Refer to Figure 13-3. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like?

Accepted Answer

A) an upward-sloping curve that increases at an increasing rate 
B) an upward-sloping curve that increases at a decreasing rate 
C) a downward-sloping curve 
D) a horizontal straight line 
A) an upward-sloping curve that increases at an increasing rate 
B) an upward-sloping curve that increases at a decreasing rate 
C) a downward-sloping curve 
D) a horizontal straight line

Question 8

Which of the following expressions is correct?

Accepted Answer

A) accounting profit = economic profit + implicit costs 
B) accounting profit = total revenue - implicit costs 
C) economic profit = accounting profit + explicit costs 
D) economic profit = total revenue - implicit costs 
A) accounting profit = economic profit + implicit costs 
B) accounting profit = total revenue - implicit costs 
C) economic profit = accounting profit + explicit costs 
D) economic profit = total revenue - implicit costs

Question 9

Economies of scale occur when a firm's

Accepted Answer

A) marginal costs are constant as output increases. 
B) long-run average total costs are decreasing as output increases. 
C) long-run average total costs are increasing as output increases. 
D) marginal costs are equal to average total costs for all levels of output. 
A) marginal costs are constant as output increases. 
B) long-run average total costs are decreasing as output increases. 
C) long-run average total costs are increasing as output increases. 
D) marginal costs are equal to average total costs for all levels of output.

Question 10

The typical total-cost curve is U-shaped.

Accepted Answer

A) True 
 B)False

Question 11

Describe the relationship between average variable cost and average total cost. How are the general shapes of the AVC and ATC curves related?

Accepted Answer

ATC = AVC + AFC, so the vertical distanc

Question 12

Economists normally assume that the goal of a firm is to earn
(i)profits as large as possible, even if it means reducing output.
(ii)profits as large as possible, even if it means incurring a higher total cost.
(iii)revenues as large as possible, even if it reduces profits.

Accepted Answer

A) (i) and (ii) only 
B) (i) and (iii) only 
C) (ii) and (iii) only 
D) (i), (ii), and (iii) 
A) (i) and (ii) only 
B) (i) and (iii) only 
C) (ii) and (iii) only 
D) (i), (ii), and (iii)

Question 13

Scenario 13-16
Barney builds custom wooden birdhouses. He can make 150 birdhouses per month and sell them for $50 each. His average total cost is $30 per birdhouse.
-Refer to Scenario 13-16. Barney is considering hiring his best friend Fred to work for him. Fred can build 125 birdhouses per month. If Barney hires Fred, what will be the monthly total output of his birdhouse business?

Accepted Answer

A) 25 birdhouses 
B) 125 birdhouses 
C) 150 birdhouses 
D) 275 birdhouses 
A) 25 birdhouses 
B) 125 birdhouses 
C) 150 birdhouses 
D) 275 birdhouses

Question 14

Economies of scale arise when

Accepted Answer

A) an economy is self-sufficient in production. 
B) individuals in a society are self-sufficient. 
C) fixed costs are large relative to variable costs. 
D) workers are able to specialize in a particular task. 
A) an economy is self-sufficient in production. 
B) individuals in a society are self-sufficient. 
C) fixed costs are large relative to variable costs. 
D) workers are able to specialize in a particular task.

Question 15

Which of the following explains why long-run average cost at first decreases as output increases?

Accepted Answer

A) diseconomies of scale 
B) less-efficient use of inputs 
C) fixed costs becoming spread out over more units of output 
D) gains from specialization of inputs 
A) diseconomies of scale 
B) less-efficient use of inputs 
C) fixed costs becoming spread out over more units of output 
D) gains from specialization of inputs

Question 16

Total cost is the

Accepted Answer

A) amount a firm receives for the sale of its output. 
B) fixed cost less variable cost. 
C) market value of the inputs a firm uses in production. 
D) quantity of output minus the quantity of inputs used to make a good. 
A) amount a firm receives for the sale of its output. 
B) fixed cost less variable cost. 
C) market value of the inputs a firm uses in production. 
D) quantity of output minus the quantity of inputs used to make a good.

Question 17

Table 13-16
Listed in the table are the long-run total costs for three different firms.  
-Refer to Table 13-16. Which firm is experiencing constant returns to scale?

Accepted Answer

A) Firm A only 
B) Firm B only 
C) Firm C only 
D) Firm A and Firm B only 
A) Firm A only 
B) Firm B only 
C) Firm C only 
D) Firm A and Firm B only

Question 18

Table 13-6
Wooden Chair Factory  
-Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day?

Accepted Answer

A) $480 
B) $576 
C) $520 
D) $616 
A) $480 
B) $576 
C) $520 
D) $616

Question 19

Marginal costs are costs that do not vary with the quantity of output produced.

Accepted Answer

A) True 
 B)False

Question 20

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing

Accepted Answer

A) economies of scale. 
B) constant returns to scale. 
C) diseconomies of scale. 
D) negative profits. 
A) economies of scale. 
B) constant returns to scale. 
C) diseconomies of scale. 
D) negative profits.

Exam 13: The Costs of Production

Average variable cost will decrease if __________.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

If a firm produces nothing, it still incurs its fixed costs.

A firm that wants to achieve economies of scale could do so by

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.

Figure 13-3 -Refer to Figure 13-3. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like?

Which of the following expressions is correct?

Economies of scale occur when a firm's

The typical total-cost curve is U-shaped.

Describe the relationship between average variable cost and average total cost. How are the general shapes of the AVC and ATC curves related?

Economists normally assume that the goal of a firm is to earn (i)profits as large as possible, even if it means reducing output. (ii)profits as large as possible, even if it means incurring a higher total cost. (iii)revenues as large as possible, even if it reduces profits.

Economies of scale arise when

Which of the following explains why long-run average cost at first decreases as output increases?

Total cost is the

Table 13-16 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-16. Which firm is experiencing constant returns to scale?

Marginal costs are costs that do not vary with the quantity of output produced.

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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