Question 1

The goal of most firms in the economy is to:

Accepted Answer

A) maximise output 
B) maximise profit 
C) obtain the highest price for their product 
D) minimise costs 
A) maximise output 
B) maximise profit 
C) obtain the highest price for their product 
D) minimise costs

Question 2

Average total cost is equal to:

Accepted Answer

A) average variable cost plus marginal cost 
B) total cost less total output 
C) average fixed cost plus average variable cost 
D) average variable cost divided by total output 
A) average variable cost plus marginal cost 
B) total cost less total output 
C) average fixed cost plus average variable cost 
D) average variable cost divided by total output

Question 3

The efficient scale of a firm is achieved when:

Accepted Answer

A) average variable cost is minimised 
B) fixed costs are spread over the most units 
C) marginal costs are at a minimum 
D) average total costs are minimised 
A) average variable cost is minimised 
B) fixed costs are spread over the most units 
C) marginal costs are at a minimum 
D) average total costs are minimised

Question 4

Diminishing marginal product suggests that:

Accepted Answer

A) marginal cost is downward-sloping 
B) additional units of output are more expensive 
C) the firm is at full capacity 
D) all of the above are true 
A) marginal cost is downward-sloping 
B) additional units of output are more expensive 
C) the firm is at full capacity 
D) all of the above are true

Question 5

The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.

Accepted Answer

A) True 
 B)False

Question 6

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.If the firm is currently operating on ATCB, what options does it have if it wants to change its level of automobile production over the next couple of weeks?

Accepted Answer

A) The firm has no options.It cannot change output level in the short run. 
B) it can operate at any level of output between points M and N 
C) it can operate at any level of output, as long as it stays on ATCD 
D) it can operate at any level of output as long as it stays on ATCB 
A) The firm has no options.It cannot change output level in the short run. 
B) it can operate at any level of output between points M and N 
C) it can operate at any level of output, as long as it stays on ATCD 
D) it can operate at any level of output as long as it stays on ATCB

Question 7

To an economist, the field of industrial organisation answers which of the following questions?

Accepted Answer

A) How does the difference in the number of firms affect prices and efficiency of market outcomes? 
B) Why are consumers subject to the law of demand? 
C) Why do firms experience falling marginal product of labour? 
D) Why do firms consider production costs when determining product supply? 
A) How does the difference in the number of firms affect prices and efficiency of market outcomes? 
B) Why are consumers subject to the law of demand? 
C) Why do firms experience falling marginal product of labour? 
D) Why do firms consider production costs when determining product supply?

Question 8

One of the most important properties of cost curves is that:

Accepted Answer

A) the average fixed cost must eventually rise 
B) the average total cost curve first rises, then falls with increased output 
C) for most producers, the average total cost curve must never cross the marginal cost curve 
D) the marginal cost eventually rises with the quantity of output 
A) the average fixed cost must eventually rise 
B) the average total cost curve first rises, then falls with increased output 
C) for most producers, the average total cost curve must never cross the marginal cost curve 
D) the marginal cost eventually rises with the quantity of output

Question 9

Diminishing marginal product suggests that the marginal:

Accepted Answer

A) product of an extra worker is less than the previous worker's marginal product 
B) cost of an extra worker is less than the previous worker's marginal cost 
C) product of an extra worker is greater than the previous worker's marginal product 
D) cost of an extra worker is unchanged 
A) product of an extra worker is less than the previous worker's marginal product 
B) cost of an extra worker is less than the previous worker's marginal cost 
C) product of an extra worker is greater than the previous worker's marginal product 
D) cost of an extra worker is unchanged

Question 10

A U-shaped long-run average total cost curve can be explained by firms increasing their size to do which of the following?
(i) take advantage of greater specialisation
(ii) avoid coordination problems
(iii) avoid fixed costs

Accepted Answer

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

Question 11

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.Which of the curves is most likely to characterise the short-run average total cost curve of the biggest factory?

Accepted Answer

A) ATCA 
B) ATCB 
C) ATCC 
D) ATCD 
A) ATCA 
B) ATCB 
C) ATCC 
D) ATCD

Question 12

If a firm is operating at an efficient scale, average total cost must:

Accepted Answer

A) rise as output is increased 
B) fall as output is increase 
C) be at its maximum 
D) none of the above will be true 
A) rise as output is increased 
B) fall as output is increase 
C) be at its maximum 
D) none of the above will be true

Question 13

A key difference between accountants and economists is their different treatment of the cost of capital.Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Accepted Answer

An accountant would not include the forg

Question 14

Diminishing marginal product of labour is NOT likely to be observed when:

Accepted Answer

A) experienced workers in labour teams help train new staff 
B) there is high demand for workers in the industry 
C) more workers allows people to specialise in one task 
D) new workers have to use the oldest technology in a plant 
A) experienced workers in labour teams help train new staff 
B) there is high demand for workers in the industry 
C) more workers allows people to specialise in one task 
D) new workers have to use the oldest technology in a plant

Question 15

Graph 13-3  
-Refer to Graph 13-3.Which of the marginal cost curves shown reflects the existence of diminishing marginal product?

Accepted Answer

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

Question 16

Which of the following is an implicit cost of owning a business?
(i) forgone savings account interest when personal money is invested in the business
(ii) interest expense on existing business loans
(iii) foregone rental income when using an owner-occupied office

Accepted Answer

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

Question 17

The marginal product of a firm's workers is revealed by the shape of the marginal cost curve.

Accepted Answer

A) True 
 B)False

Question 18

Suppose a firm increases output by one unit.Which of the following statements is true?

Accepted Answer

A) total cost will increase by an amount equal to average variable cost 
B) total cost will increase by an amount equal to the marginal cost 
C) variable cost will increase by an amount equal to marginal cost 
D) average fixed cost will stay constant 
A) total cost will increase by an amount equal to average variable cost 
B) total cost will increase by an amount equal to the marginal cost 
C) variable cost will increase by an amount equal to marginal cost 
D) average fixed cost will stay constant

Question 19

If a firm incurs fixed costs the average variable cost curve will always lie below the average total cost curve.

Accepted Answer

A) True 
 B)False

Question 20

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory.  
-Refer to Table 13-1.What is the marginal cost of producing the first kayak?

Accepted Answer

A) it can't be determined from the information given 
B) $0 
C) $15 
D) $4 
A) it can't be determined from the information given 
B) $0 
C) $15 
D) $4

Exam 13: The Costs of Production

The goal of most firms in the economy is to:

Average total cost is equal to:

The efficient scale of a firm is achieved when:

Diminishing marginal product suggests that:

The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.

To an economist, the field of industrial organisation answers which of the following questions?

One of the most important properties of cost curves is that:

Diminishing marginal product suggests that the marginal:

A U-shaped long-run average total cost curve can be explained by firms increasing their size to do which of the following? (i) take advantage of greater specialisation (ii) avoid coordination problems (iii) avoid fixed costs

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.Which of the curves is most likely to characterise the short-run average total cost curve of the biggest factory?

If a firm is operating at an efficient scale, average total cost must:

A key difference between accountants and economists is their different treatment of the cost of capital.Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Diminishing marginal product of labour is NOT likely to be observed when:

Graph 13-3 -Refer to Graph 13-3.Which of the marginal cost curves shown reflects the existence of diminishing marginal product?

Which of the following is an implicit cost of owning a business? (i) forgone savings account interest when personal money is invested in the business (ii) interest expense on existing business loans (iii) foregone rental income when using an owner-occupied office

The marginal product of a firm's workers is revealed by the shape of the marginal cost curve.

Suppose a firm increases output by one unit.Which of the following statements is true?

If a firm incurs fixed costs the average variable cost curve will always lie below the average total cost curve.

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.What is the marginal cost of producing the first kayak?

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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