Question 1

The cost of capital includes both any interest payments in loans as well as any forgone interest on savings used to finance the business.

Accepted Answer

A) True 
 B)False

Question 2

Harry's Hotdogs is a small street vendor business owned by Harry Huggins.If Harry makes 10 hotdogs in his first hour of business and incurs a total cost of $16.50, his average total cost per hotdog is:

Accepted Answer

A) $1.65 
B) $6.50 
C) this is impossible to determine without specific information on fixed cost 
D) this is impossible to determine without specific information on variable cost 
A) $1.65 
B) $6.50 
C) this is impossible to determine without specific information on fixed cost 
D) this is impossible to determine without specific information on variable cost

Question 3

At low output levels a firm's average total cost tends to be high because:

Accepted Answer

A) marginal costs are increasing 
B) variable costs are spread over only a few units of output 
C) average fixed cost is large 
D) there is a shortage of experienced workers 
A) marginal costs are increasing 
B) variable costs are spread over only a few units of output 
C) average fixed cost is large 
D) there is a shortage of experienced workers

Question 4

Table 13-3
Consider the following firm which makes high-performance racing bicycles.All costs are given in dollars.Output is shown on a monthly basis.The firm's fixed costs include a rent of $800 and a lease cost of $400 per month.  
-Refer to Table 13-3.At what level of output will average variable cost equal average total cost?

Accepted Answer

A) when marginal cost equals average variable cost 
B) when marginal cost equals average total cost 
C) there is no level of output where this occurs, as long as fixed costs are positive 
D) this holds true for all levels of output in which average variable cost is falling 
A) when marginal cost equals average variable cost 
B) when marginal cost equals average total cost 
C) there is no level of output where this occurs, as long as fixed costs are positive 
D) this holds true for all levels of output in which average variable cost is falling

Question 5

Profit plus total costs equals:

Accepted Answer

A) total revenue 
B) net profit 
C) capital profit 
D) operational profit 
A) total revenue 
B) net profit 
C) capital profit 
D) operational profit

Question 6

Cost of capital can also be seen as implicit costs.

Accepted Answer

A) True 
 B)False

Question 7

Graph 13-5   The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s).
-Refer to Graph 13-5.Which of the curves is most likely to represent average total cost?

Accepted Answer

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

Question 8

Graph 13-1   This graph depicts a production function for a firm that produces cookies.Use the
graph to answer the following question(s).
-Refer to Graph 13-1.As the number of workers increases:

Accepted Answer

A) total output increases, but at a decreasing rate 
B) marginal product increases but at a decreasing rate 
C) marginal product increases 
D) total output decreases 
A) total output increases, but at a decreasing rate 
B) marginal product increases but at a decreasing rate 
C) marginal product increases 
D) total output decreases

Question 9

A firm's profit is equivalent to:

Accepted Answer

A) its total sales 
B) average revenue minus average total cost 
C) marginal revenue minus marginal cost 
D) total revenue minus total cost 
A) its total sales 
B) average revenue minus average total cost 
C) marginal revenue minus marginal cost 
D) total revenue minus total cost

Question 10

Variable costs usually change as the firm alters the quantity of output produced.

Accepted Answer

A) True 
 B)False

Question 11

When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 12

As the quantity produced increases:

Accepted Answer

A) average fixed cost decreases 
B) fixed cost increases 
C) variable cost always decreases 
D) none of the above are true 
A) average fixed cost decreases 
B) fixed cost increases 
C) variable cost always decreases 
D) none of the above are true

Question 13

The average total cost curve will be downward sloping whenever:

Accepted Answer

A)  average fixed cost is greater than average variable cost 
B)  marginal cost is smaller than average total cost 
C)  marginal costs are decreasing 
D)  average variable cost is increasing 
A)  average fixed cost is greater than average variable cost 
B)  marginal cost is smaller than average total cost 
C)  marginal costs are decreasing 
D)  average variable cost is increasing

Question 14

Graph 13-2   This graph depicts a total cost function for a firm that produces cookies.Use the graph to answer the following question(s).
-Refer to Graph 13-2.Which of the statements below best captures information about the underlying production function?

Accepted Answer

A) output increases at a decreasing rate with additional units of input 
B) output increases at an increasing rate with additional units of input 
C) output decreases at a decreasing rate with additional units of input 
D) output decreases at an increasing rate with additional units of input 
A) output increases at a decreasing rate with additional units of input 
B) output increases at an increasing rate with additional units of input 
C) output decreases at a decreasing rate with additional units of input 
D) output decreases at an increasing rate with additional units of input

Question 15

The long-run average total cost curve is:

Accepted Answer

A) steeper than the short-run average total cost curve as the firm incurs more fixed costs in the long run 
B) never steeper than short-run average total cost curves, as the firm can always choose the same input combinations as the short-run 
C) steeper or flatter than the short-run average cost curve, but it depends on the long-run marginal cost curve 
D) we cannot say without more detailed information on the firm's costs 
A) steeper than the short-run average total cost curve as the firm incurs more fixed costs in the long run 
B) never steeper than short-run average total cost curves, as the firm can always choose the same input combinations as the short-run 
C) steeper or flatter than the short-run average cost curve, but it depends on the long-run marginal cost curve 
D) we cannot say without more detailed information on the firm's costs

Question 16

Average total cost tells us the:

Accepted Answer

A) cost of the last unit of output if total cost does not include a fixed cost component 
B) cost of a typical unit of output if total cost is divided evenly over all the units produced 
C) variable cost of a firm that is producing at least one unit of output 
D) total cost of the first unit of output if total cost is divided evenly over all the units produced 
A) cost of the last unit of output if total cost does not include a fixed cost component 
B) cost of a typical unit of output if total cost is divided evenly over all the units produced 
C) variable cost of a firm that is producing at least one unit of output 
D) total cost of the first unit of output if total cost is divided evenly over all the units produced

Question 17

Graph 13-5   The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s).
-Refer to Graph 13-5.This particular firm is necessarily experiencing diminishing marginal product when which of the following is occurring?
(i) line A is rising
(ii) line B is rising
(iii) line C is rising

Accepted Answer

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

Question 18

Economists normally assume that the goal of a firm is to maximise revenue.

Accepted Answer

A) True 
 B)False

Question 19

Graph 13-6   This graph depicts average total cost functions for a firm that produces automobiles.Use the graph to answer the following question(s).
-Refer to Graph 13-6.This firm experiences constant returns to scale at which output levels?

Accepted Answer

A) output levels above N 
B) output levels between M and N 
C) output levels below M 
D) all of the above levels if the firm is operating in the long run 
A) output levels above N 
B) output levels between M and N 
C) output levels below M 
D) all of the above levels if the firm is operating in the long run

Question 20

The amount of money that an orchardist could have earned if he had planted orange trees rather than apple trees is termed:

Accepted Answer

A) explicit cost 
B) accounting cost 
C) implicit cost 
D) total sales 
A) explicit cost 
B) accounting cost 
C) implicit cost 
D) total sales

Exam 13: The Costs of Production

The cost of capital includes both any interest payments in loans as well as any forgone interest on savings used to finance the business.

Harry's Hotdogs is a small street vendor business owned by Harry Huggins.If Harry makes 10 hotdogs in his first hour of business and incurs a total cost of $16.50, his average total cost per hotdog is:

At low output levels a firm's average total cost tends to be high because:

Profit plus total costs equals:

Cost of capital can also be seen as implicit costs.

Graph 13-5 The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s). -Refer to Graph 13-5.Which of the curves is most likely to represent average total cost?

Graph 13-1 This graph depicts a production function for a firm that produces cookies.Use the graph to answer the following question(s). -Refer to Graph 13-1.As the number of workers increases:

A firm's profit is equivalent to:

Variable costs usually change as the firm alters the quantity of output produced.

When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale.

As the quantity produced increases:

The average total cost curve will be downward sloping whenever:

Graph 13-2 This graph depicts a total cost function for a firm that produces cookies.Use the graph to answer the following question(s). -Refer to Graph 13-2.Which of the statements below best captures information about the underlying production function?

The long-run average total cost curve is:

Average total cost tells us the:

Economists normally assume that the goal of a firm is to maximise revenue.

Graph 13-6 This graph depicts average total cost functions for a firm that produces automobiles.Use the graph to answer the following question(s). -Refer to Graph 13-6.This firm experiences constant returns to scale at which output levels?

The amount of money that an orchardist could have earned if he had planted orange trees rather than apple trees is termed:

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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