Question 1

Economies of scale are said to exist when

Accepted Answer

A) inputs are increased by some percentage and output increases by the same percentage. 
B) inputs are increased by some percentage and output increases by a lesser percentage. 
C) inputs are increased by some percentage and output increases by a greater percentage. 
D) the LRATC curve slopes upward. 
E) none of the above 
A) inputs are increased by some percentage and output increases by the same percentage. 
B) inputs are increased by some percentage and output increases by a lesser percentage. 
C) inputs are increased by some percentage and output increases by a greater percentage. 
D) the LRATC curve slopes upward. 
E) none of the above

Question 2

An example of an implicit cost is the foregone income that a business owner-manager could have earned working for someone else.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true?

Accepted Answer

A) If the marginal cost curve is above the AFC curve, the AFC curve must be rising. 
B) Average total cost equals average variable cost minus average fixed cost. 
C) As output increases, the average variable cost curve gets closer to the average total cost curve. 
D) The AFC curve is horizontal as output increases. 
A) If the marginal cost curve is above the AFC curve, the AFC curve must be rising. 
B) Average total cost equals average variable cost minus average fixed cost. 
C) As output increases, the average variable cost curve gets closer to the average total cost curve. 
D) The AFC curve is horizontal as output increases.

Question 4

Constant returns to 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; remain constant 
A) greater; fall 
B) smaller; fall 
C) greater; rise 
D) smaller; rise 
E) equal; remain constant

Question 5

What is the typical shape of the AFC curve? Explain why it is shaped this way.

Accepted Answer

The formula for determining AFC is TFC/Q

Question 6

Shirking, being a form of __________, is a good that individuals may consume more of the __________ its cost.

Accepted Answer

A) work; higher 
B) work; lower 
C) leisure; higher 
D) leisure; lower 
A) work; higher 
B) work; lower 
C) leisure; higher 
D) leisure; lower

Question 7

The reason the change in total cost divided by the change in output is equal to 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. 
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.

Question 8

Which of the following is an implicit cost?

Accepted Answer

A) Jones buys $100 worth of supplies from Smith. 
B) Brown pays the bill he received in the mail. 
C) Smith, who could work for someone else, works for himself. 
D) Williamson pays his income taxes on April 15. 
E) a, c, and d 
A) Jones buys $100 worth of supplies from Smith. 
B) Brown pays the bill he received in the mail. 
C) Smith, who could work for someone else, works for himself. 
D) Williamson pays his income taxes on April 15. 
E) a, c, and d

Question 9

Exhibit 21-13
​
  
-Refer to Exhibit 21-13. What dollar amounts go in blanks (I) and (J), respectively?

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 10

If the marginal productivity of labor is falling, it follows that

Accepted Answer

A) the average productivity of labor is rising. 
B) marginal cost is falling. 
C) marginal cost is rising. 
D) average productivity of labor is falling. 
E) c and d 
A) the average productivity of labor is rising. 
B) marginal cost is falling. 
C) marginal cost is rising. 
D) average productivity of labor is falling. 
E) c and d

Question 11

Given that fixed costs are constant as output increases, average fixed costs are also constant.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

In the theory of the firm (as put forth by Alchian and Demsetz), trade or exchange pops up in the following situation:

Accepted Answer

A) when individuals choose to form a team 
B) when the monitor fires an employee 
C) when individuals in a team shirk 
D) a and c 
A) when individuals choose to form a team 
B) when the monitor fires an employee 
C) when individuals in a team shirk 
D) a and c

Question 14

Exhibit 21-4
​
  
-Diseconomies of scale are present when the __________ average total cost curve is __________.

Accepted Answer

A) short-run; falling 
B) short-run; rising 
C) long-run; falling 
D) long-run; rising 
E) b and d 
A) short-run; falling 
B) short-run; rising 
C) long-run; falling 
D) long-run; rising 
E) b and d

Question 15

The marginal cost curve cuts through the AVC, ATC, and AFC curves at their lowest points.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 21-11
​
  
-Refer to Exhibit 21-11. Marginal cost of the sixth unit of output is

Accepted Answer

A) $100. 
B) $150. 
C) $90. 
D) $90.83. 
A) $100. 
B) $150. 
C) $90. 
D) $90.83.

Question 17

Explain the difference between the law of diminishing marginal returns and diseconomies of scale.

Accepted Answer

The law of diminishing marginal returns

Question 18

Exhibit 21-10
​
   ​
-Refer to Exhibit 21-10. Professor Jones, who is encouraging the three students to work together in order to be "more productive," is implicitly assuming that by working together they will be able to

Accepted Answer

A) solve more problems in the same amount of time than they would by studying separately. 
B) solve the same number of problems in less time than they would by studying separately. 
C) decrease their marginal products through joint efforts. 
D) all of the above 
E) a and b 
A) solve more problems in the same amount of time than they would by studying separately. 
B) solve the same number of problems in less time than they would by studying separately. 
C) decrease their marginal products through joint efforts. 
D) all of the above 
E) a and b

Question 19

Exhibit 21-7
​
  
-Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is

Accepted Answer

A) $16.25. 
B) $4.00. 
C) $11.15. 
D) $6.00. 
E) There is not enough information to answer this question. 
A) $16.25. 
B) $4.00. 
C) $11.15. 
D) $6.00. 
E) There is not enough information to answer this question.

Question 20

Exhibit 21-11
​
  
-Refer to Exhibit 21-11. Average fixed cost at two units of output is

Accepted Answer

A) $50. 
B) $60. 
C) $100. 
D) $110. 
E) There is not enough information provided to answer this question. 
A) $50. 
B) $60. 
C) $100. 
D) $110. 
E) There is not enough information provided to answer this question.

Exam 21: Production and Costs

Economies of scale are said to exist when

An example of an implicit cost is the foregone income that a business owner-manager could have earned working for someone else.

Which of the following statements is true?

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

What is the typical shape of the AFC curve? Explain why it is shaped this way.

Shirking, being a form of __________, is a good that individuals may consume more of the __________ its cost.

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

Which of the following is an implicit cost?

Exhibit 21-13 ​ -Refer to Exhibit 21-13. What dollar amounts go in blanks (I) and (J), respectively?

If the marginal productivity of labor is falling, it follows that

Given that fixed costs are constant as output increases, average fixed costs are also constant.

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

In the theory of the firm (as put forth by Alchian and Demsetz), trade or exchange pops up in the following situation:

Exhibit 21-4 ​ -Diseconomies of scale are present when the __________ average total cost curve is __________.

The marginal cost curve cuts through the AVC, ATC, and AFC curves at their lowest points.

Exhibit 21-11 ​ -Refer to Exhibit 21-11. Marginal cost of the sixth unit of output is

Explain the difference between the law of diminishing marginal returns and diseconomies of scale.

Exhibit 21-10 ​ ​ -Refer to Exhibit 21-10. Professor Jones, who is encouraging the three students to work together in order to be "more productive," is implicitly assuming that by working together they will be able to

Exhibit 21-7 ​ -Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is

Exhibit 21-11 ​ -Refer to Exhibit 21-11. Average fixed cost at two units of output is

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II 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

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice 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

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

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

Shirking, being a form of , is a good that individuals may consume more of the its cost.

Exhibit 21-13 -Refer to Exhibit 21-13. What dollar amounts go in blanks (I) and (J), respectively?

Exhibit 21-4 -Diseconomies of scale are present when the average total cost curve is .

Exhibit 21-11 -Refer to Exhibit 21-11. Marginal cost of the sixth unit of output is

Exhibit 21-10 -Refer to Exhibit 21-10. Professor Jones, who is encouraging the three students to work together in order to be "more productive," is implicitly assuming that by working together they will be able to

Exhibit 21-7 -Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is

Exhibit 21-11 -Refer to Exhibit 21-11. Average fixed cost at two units of output is