Question 1

Evaluate this statement: "If the economic profit is zero, a business will shut down. "

Accepted Answer

That is an incorrect statement. If a firm is breaking even (that is, earning exactly $0 of economic profit), then its entrepreneurs know they are doing exactly as well as they could expect to do in their best alternative business venture. They are earning enough to cover all their explicit and implicit costs, including the normal profit they could expect to earn in other business ventures. Thus, they have no incentive to change.

Question 2

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.The total revenues of Harvey's firm in the first year were

Accepted Answer

A) $220,000. 
B) $105,000. 
C) $605,000. 
D) $825,000. 
A) $220,000. 
B) $105,000. 
C) $605,000. 
D) $825,000. D

Question 3

The table shows three short-run cost schedules for three plants of different sizes that a firm might build in the long run.   If the three plant sizes shown are the only ones possible, then there are economies of scale in producing

Accepted Answer

A) up to 10 units of output, and diseconomies of scale after that. 
B) up to 20 units of output, and diseconomies of scale after that. 
C) up to 30 units of output, and diseconomies of scale after that. 
D) up to 40 units of output, and diseconomies of scale after that. 
A) up to 10 units of output, and diseconomies of scale after that. 
B) up to 20 units of output, and diseconomies of scale after that. 
C) up to 30 units of output, and diseconomies of scale after that. 
D) up to 40 units of output, and diseconomies of scale after that. C

Question 4

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.   Average product is at a maximum when

Accepted Answer

A) two worker(s)is/are hired. 
B) five worker(s)is/are hired. 
C) six worker(s)is/are hired. 
D) four worker(s)is/are hired. 
A) two worker(s)is/are hired. 
B) five worker(s)is/are hired. 
C) six worker(s)is/are hired. 
D) four worker(s)is/are hired.

Question 5

Refer to the provided graphs. They show the long-run average total cost (LRATC)for a product. For which graph would a firm experience first economies and then diseconomies of scale over its range of output?

Accepted Answer

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

Question 6

Economic costs are equal to

Accepted Answer

A) the opportunity costs of all resources owned by the firm. 
B) actual expenses paid by the firm for all of its inputs. 
C) the sum of all explicit costs and implicit costs. 
D) accounting costs. 
A) the opportunity costs of all resources owned by the firm. 
B) actual expenses paid by the firm for all of its inputs. 
C) the sum of all explicit costs and implicit costs. 
D) accounting costs.

Question 7

Assume that the only variable resource used to produce output is labor.   Refer to the provided table. With diminishing marginal returns, if the firm hires seven units of labor, which of the following numbers would most probably be the total product?

Accepted Answer

A) 40 
B) 39 
C) 42 
D) 37 
A) 40 
B) 39 
C) 42 
D) 37

Question 8

Refer to the diagram. For output level Q, per unit costs of C are

Accepted Answer

A) unattainable and imply the inefficient use of resources. 
B) unattainable, given resource prices and the current state of technology. 
C) attainable but imply the inefficient use of resources. 
D) attainable and imply that resources are being combined efficiently. 
A) unattainable and imply the inefficient use of resources. 
B) unattainable, given resource prices and the current state of technology. 
C) attainable but imply the inefficient use of resources. 
D) attainable and imply that resources are being combined efficiently.

Question 9

Assume that in the short run a firm is producing 200 units of output, has average total costs of $250, and has average variable costs of $150. The firm's total fixed costs are.

Accepted Answer

A) $20,000. 
B) $2. 
C) $0.5. 
D) $100. 
A) $20,000. 
B) $2. 
C) $0.5. 
D) $100.

Question 10

A firm with fixed costs produces at the lowest point on its U-shaped average variable cost curve. If it raises output by 1 unit, then

Accepted Answer

A) average fixed cost will increase. 
B) average total cost will decrease. 
C) average fixed cost will necessarily be below average variable cost. 
D) average total cost will be less than average variable cost. 
A) average fixed cost will increase. 
B) average total cost will decrease. 
C) average fixed cost will necessarily be below average variable cost. 
D) average total cost will be less than average variable cost.

Question 11

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly-line basis?

Accepted Answer

A) an increase in the amount of steel that the firm buys 
B) a decrease in the number of production workers in the assembly line 
C) a switch in production to a redesigned and retooled facility 
D) an increase in the number of shifts of workers from two to three 
A) an increase in the amount of steel that the firm buys 
B) a decrease in the number of production workers in the assembly line 
C) a switch in production to a redesigned and retooled facility 
D) an increase in the number of shifts of workers from two to three

Question 12

Cash expenditures a firm incurs to pay for resources are called

Accepted Answer

A) implicit costs. 
B) explicit costs. 
C) normal profit. 
D) opportunity costs. 
A) implicit costs. 
B) explicit costs. 
C) normal profit. 
D) opportunity costs.

Question 13

Introduction of the Verson Stamping Machine helped firms in the automobile industry

Accepted Answer

A) eliminate diminishing returns in production. 
B) achieve greater economies of scale. 
C) reach their minimum efficient scale at a lower level of production. 
D) shift their AVC, ATC, and MC curves upward. 
A) eliminate diminishing returns in production. 
B) achieve greater economies of scale. 
C) reach their minimum efficient scale at a lower level of production. 
D) shift their AVC, ATC, and MC curves upward.

Question 14

Which of the following is a short-run adjustment?

Accepted Answer

A) A local bakery hires two additional bakers. 
B) Six new firms enter the plastics industry. 
C) The number of farms in the United States declines by 5 percent. 
D) BMW constructs a new assembly plant in South Carolina. 
A) A local bakery hires two additional bakers. 
B) Six new firms enter the plastics industry. 
C) The number of farms in the United States declines by 5 percent. 
D) BMW constructs a new assembly plant in South Carolina.

Question 15

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total costs are.

Accepted Answer

A) $20,000. 
B) $15,000. 
C) $50. 
D) $5,000. 
A) $20,000. 
B) $15,000. 
C) $50. 
D) $5,000.

Question 16

Refer to the provided graphs. They show the long-run average total cost (LRATC)for cars. For which graph are there economies of scale throughout the entire range of output of cars?

Accepted Answer

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

Question 17

Answer the question on the basis of the following cost data.   The marginal cost of producing the sixth unit of output is

Accepted Answer

A) $12. 
B) $8. 
C) $24. 
D) $45. 
A) $12. 
B) $8. 
C) $24. 
D) $45.

Question 18

The development of additive manufacturing technology (3-D printers)is expected to lower prices by doing which of the following?

Accepted Answer

A) reducing the cost of producing blueprints for manufactured goods 
B) promoting greater economies of scale in manufacturing 
C) reducing the demand for manufactured goods 
D) reducing both large fixed set-up costs and transportation costs 
A) reducing the cost of producing blueprints for manufactured goods 
B) promoting greater economies of scale in manufacturing 
C) reducing the demand for manufactured goods 
D) reducing both large fixed set-up costs and transportation costs

Question 19

Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because

Accepted Answer

A) the ability or quality of the variable inputs hired decreases as more of them are hired. 
B) the firm must lower the price of its product when it produces more units of output. 
C) the per unit cost it must pay for variable inputs increases as more inputs are hired. 
D) as more variable inputs are hired, the amount of the fixed input per unit of variable input decreases. 
A) the ability or quality of the variable inputs hired decreases as more of them are hired. 
B) the firm must lower the price of its product when it produces more units of output. 
C) the per unit cost it must pay for variable inputs increases as more inputs are hired. 
D) as more variable inputs are hired, the amount of the fixed input per unit of variable input decreases.

Question 20

The following table shows the relationship between output and costs for two firms in the short run.   Which of the following is correct?

Accepted Answer

A) B has lower fixed costs than A. 
B) A has higher per-unit costs than B at an output level of 1. 
C) A has greater marginal costs than B at each level of output. 
D) B starts experiencing diminishing marginal returns with the second unit of output. 
A) B has lower fixed costs than A. 
B) A has higher per-unit costs than B at an output level of 1. 
C) A has greater marginal costs than B at each level of output. 
D) B starts experiencing diminishing marginal returns with the second unit of output.

Exam 9: Businesses and the Costs of Production

Evaluate this statement: "If the economic profit is zero, a business will shut down. "

The table shows three short-run cost schedules for three plants of different sizes that a firm might build in the long run. If the three plant sizes shown are the only ones possible, then there are economies of scale in producing

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Average product is at a maximum when

Refer to the provided graphs. They show the long-run average total cost (LRATC)for a product. For which graph would a firm experience first economies and then diseconomies of scale over its range of output?

Economic costs are equal to

Assume that the only variable resource used to produce output is labor. Refer to the provided table. With diminishing marginal returns, if the firm hires seven units of labor, which of the following numbers would most probably be the total product?

Refer to the diagram. For output level Q, per unit costs of C are

Assume that in the short run a firm is producing 200 units of output, has average total costs of $250, and has average variable costs of $150. The firm's total fixed costs are.

A firm with fixed costs produces at the lowest point on its U-shaped average variable cost curve. If it raises output by 1 unit, then

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly-line basis?

Cash expenditures a firm incurs to pay for resources are called

Introduction of the Verson Stamping Machine helped firms in the automobile industry

Which of the following is a short-run adjustment?

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total costs are.

Refer to the provided graphs. They show the long-run average total cost (LRATC)for cars. For which graph are there economies of scale throughout the entire range of output of cars?

Answer the question on the basis of the following cost data. The marginal cost of producing the sixth unit of output is

The development of additive manufacturing technology (3-D printers)is expected to lower prices by doing which of the following?

Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because

The following table shows the relationship between output and costs for two firms in the short run. Which of the following is correct?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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