Question 1

When calculating total production costs, what kind of cost is the crucial difference between how economists and accountants analyze the profitability of a business?

Accepted Answer

A)  sunk costs 
B)  explicit costs 
C)  implicit costs 
D)  cash payments 
A)  sunk costs 
B)  explicit costs 
C)  implicit costs 
D)  cash payments

Question 2

Typically, what is the shape of the average total cost curve for a firm in the short run?

Accepted Answer

A)  An average total cost curve is U-shaped. 
B)  An average total cost curve slopes downward as output expands and approaches the X-axis when output is very large. 
C)  An average total cost curve constantly slopes upward as output expands and eventually approaches an infinite dollar amount at high rates of output. 
D)  An average total cost curve is a vertical line. 
A)  An average total cost curve is U-shaped. 
B)  An average total cost curve slopes downward as output expands and approaches the X-axis when output is very large. 
C)  An average total cost curve constantly slopes upward as output expands and eventually approaches an infinite dollar amount at high rates of output. 
D)  An average total cost curve is a vertical line.

Question 3

What short-run curve typically declines continuously as output expands?

Accepted Answer

A)  marginal cost 
B)  average total cost 
C)  average variable cost 
D)  average fixed cost 
A)  marginal cost 
B)  average total cost 
C)  average variable cost 
D)  average fixed cost

Question 4

Luke Spacewalker realizes that his space taxi service is operating in the region of diminishing marginal product. As he provides more taxi service in the short run, what will happen to the marginal cost of providing the additional service?

Accepted Answer

A)  Marginal cost will increase. 
B)  Marginal cost will be zero. 
C)  Marginal cost will stay the same. 
D)  Marginal cost will decrease. 
A)  Marginal cost will increase. 
B)  Marginal cost will be zero. 
C)  Marginal cost will stay the same. 
D)  Marginal cost will decrease.

Question 5

What will an increase in wage rates cause in the long run?

Accepted Answer

A)  Without more information, the effect on MC and ATC cannot be determined. 
B)  They will cause an increase in MC and a decrease in AC 
C)  They will cause an increase in both MC and AC 
D)  They will cause an increase in MC, AVC and ATC 
A)  Without more information, the effect on MC and ATC cannot be determined. 
B)  They will cause an increase in MC and a decrease in AC 
C)  They will cause an increase in both MC and AC 
D)  They will cause an increase in MC, AVC and ATC

Question 6

If average variable cost exceeds marginal cost, then what can we conclude about the average variable and average total costs?

Accepted Answer

A)  The average variable cost is decreasing, and the average total cost is increasing. 
B)  Both the average variable and average total cost are decreasing. 
C)  The average variable cost is decreasing, and the average total cost may be increasing or decreasing. 
D)  The average variable cost is increasing, and the average total cost is decreasing. 
A)  The average variable cost is decreasing, and the average total cost is increasing. 
B)  Both the average variable and average total cost are decreasing. 
C)  The average variable cost is decreasing, and the average total cost may be increasing or decreasing. 
D)  The average variable cost is increasing, and the average total cost is decreasing.

Question 7

Which of the following best describes economies of scale?

Accepted Answer

A)  They refer to the increase in output that results from the increased utilization of a single input. 
B)  They pertain to the long run only. 
C)  They imply that the average total cost curve will fall continuously as output increases in the short run. 
D)  They are the result of a diminishing marginal product. 
A)  They refer to the increase in output that results from the increased utilization of a single input. 
B)  They pertain to the long run only. 
C)  They imply that the average total cost curve will fall continuously as output increases in the short run. 
D)  They are the result of a diminishing marginal product.

Question 8

When does diminishing marginal product of labour occur?

Accepted Answer

A)  when adding another unit of labour increases output by a larger margin than the last unit of labour employed 
B)  when the average product of labour begins to rise 
C)  when all inputs are varied simultaneously in the same proportion 
D)  when adding another unit of labour increases output, but not by as large a margin as the last unit of labour employed 
A)  when adding another unit of labour increases output by a larger margin than the last unit of labour employed 
B)  when the average product of labour begins to rise 
C)  when all inputs are varied simultaneously in the same proportion 
D)  when adding another unit of labour increases output, but not by as large a margin as the last unit of labour employed

Question 9

What do constant returns to scale indicate that a firm is experiencing?

Accepted Answer

A)  an increasing marginal product 
B)  per unit costs of production that are decreasing as the scale of output expands 
C)  per unit costs of production that remain stable as the scale of output expands 
D)  per unit costs of production that are increasing as the scale of output expands 
A)  an increasing marginal product 
B)  per unit costs of production that are decreasing as the scale of output expands 
C)  per unit costs of production that remain stable as the scale of output expands 
D)  per unit costs of production that are increasing as the scale of output expands

Question 10

What are diseconomies of scale associated with?

Accepted Answer

A)  a vertical long-run average total cost curve 
B)  an upward-sloping long-run average total cost curve 
C)  a horizontal long-run average total cost curve 
D)  a downward-sloping long-run average total cost curve 
A)  a vertical long-run average total cost curve 
B)  an upward-sloping long-run average total cost curve 
C)  a horizontal long-run average total cost curve 
D)  a downward-sloping long-run average total cost curve

Question 11

A firm's total product of labour curve is represented by the following data: one worker can produce 4 units of output; two workers, 10 units; three workers, 17 units; four workers, 25 units; five workers, 30 units; six workers, 35 units; seven workers, 38 units; eight workers, 39 units; and nine workers, 38 units. What is the marginal product of the seventh worker? When does the law of diminishing marginal product set in? Under these circumstances would you ever choose to employ nine workers?

Accepted Answer

The marginal product of the seventh work

Question 12

Which of the following is most likely to be a fixed cost for a business?

Accepted Answer

A)  payment for raw materials used in manufacturing goods 
B)  interest payments on a loan used to finance the construction of a building 
C)  wages paid to temporary workers 
D)  shipping charges for the delivery of products 
A)  payment for raw materials used in manufacturing goods 
B)  interest payments on a loan used to finance the construction of a building 
C)  wages paid to temporary workers 
D)  shipping charges for the delivery of products

Question 13

What is the marginal product of capital equal to?

Accepted Answer

A)  the increase in capital necessary to generate a one-unit increase in output 
B)  the incremental cost of employing one more unit of physical or human capital 
C)  the increase in output obtained from a one-unit increase in capital, holding other factors constant 
D)  the incremental profit associated with selling one more unit of output 
A)  the increase in capital necessary to generate a one-unit increase in output 
B)  the incremental cost of employing one more unit of physical or human capital 
C)  the increase in output obtained from a one-unit increase in capital, holding other factors constant 
D)  the incremental profit associated with selling one more unit of output

Question 14

What is the term for costs that vary with output?

Accepted Answer

A)  marginal product 
B)  fixed costs 
C)  variable costs 
D)  overhead costs 
A)  marginal product 
B)  fixed costs 
C)  variable costs 
D)  overhead costs

Question 15

In the long run, firms can vary all inputs in the production process.

Accepted Answer

A) True 
 B)False

Question 16

The total fixed cost of operating a lumberyard equals $12 000 this year. The average fixed cost of the lumberyard will not be affected by the quantity of lumber that is sold.

Accepted Answer

A) True 
 B)False

Question 17

If average fixed cost and average variable cost are summed together, what is the result?

Accepted Answer

A)  average total cost 
B)  total revenue 
C)  total cost 
D)  total profit 
A)  average total cost 
B)  total revenue 
C)  total cost 
D)  total profit

Question 18

When the marginal cost curve lies below the average variable cost curve, what is happening to the average variable cost?

Accepted Answer

A)  The average variable cost is zero. 
B)  The average variable cost is increasing. 
C)  The average variable cost is decreasing. 
D)  The average variable cost does not change. 
A)  The average variable cost is zero. 
B)  The average variable cost is increasing. 
C)  The average variable cost is decreasing. 
D)  The average variable cost does not change.

Question 19

If AVC is subtracted from the ATC, what is the result?

Accepted Answer

A)  accounting profit 
B)  marginal cost 
C)  average fixed cost 
D)  economic profit 
A)  accounting profit 
B)  marginal cost 
C)  average fixed cost 
D)  economic profit

Question 20

When average total cost is decreasing as output expands, what can we conclude?

Accepted Answer

A)  that total fixed costs must be increasing 
B)  that average variable cost must be falling 
C)  that average fixed cost must be increasing 
D)  that marginal cost must be less than average total cost 
A)  that total fixed costs must be increasing 
B)  that average variable cost must be falling 
C)  that average fixed cost must be increasing 
D)  that marginal cost must be less than average total cost

When calculating total production costs, what kind of cost is the crucial difference between how economists and accountants analyze the profitability of a business?

Typically, what is the shape of the average total cost curve for a firm in the short run?

What short-run curve typically declines continuously as output expands?

Luke Spacewalker realizes that his space taxi service is operating in the region of diminishing marginal product. As he provides more taxi service in the short run, what will happen to the marginal cost of providing the additional service?

What will an increase in wage rates cause in the long run?

If average variable cost exceeds marginal cost, then what can we conclude about the average variable and average total costs?

Which of the following best describes economies of scale?

When does diminishing marginal product of labour occur?

What do constant returns to scale indicate that a firm is experiencing?

What are diseconomies of scale associated with?

Which of the following is most likely to be a fixed cost for a business?

What is the marginal product of capital equal to?

What is the term for costs that vary with output?

In the long run, firms can vary all inputs in the production process.

The total fixed cost of operating a lumberyard equals $12 000 this year. The average fixed cost of the lumberyard will not be affected by the quantity of lumber that is sold.

If average fixed cost and average variable cost are summed together, what is the result?

When the marginal cost curve lies below the average variable cost curve, what is happening to the average variable cost?

If AVC is subtracted from the ATC, what is the result?

When average total cost is decreasing as output expands, what can we conclude?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 7: Production and Costs

When calculating total production costs, what kind of cost is the crucial difference between how economists and accountants analyze the profitability of a business?

Typically, what is the shape of the average total cost curve for a firm in the short run?

What short-run curve typically declines continuously as output expands?

Luke Spacewalker realizes that his space taxi service is operating in the region of diminishing marginal product. As he provides more taxi service in the short run, what will happen to the marginal cost of providing the additional service?

What will an increase in wage rates cause in the long run?

If average variable cost exceeds marginal cost, then what can we conclude about the average variable and average total costs?

Which of the following best describes economies of scale?

When does diminishing marginal product of labour occur?

What do constant returns to scale indicate that a firm is experiencing?

What are diseconomies of scale associated with?

Which of the following is most likely to be a fixed cost for a business?

What is the marginal product of capital equal to?

What is the term for costs that vary with output?

In the long run, firms can vary all inputs in the production process.

The total fixed cost of operating a lumberyard equals $12 000 this year. The average fixed cost of the lumberyard will not be affected by the quantity of lumber that is sold.

If average fixed cost and average variable cost are summed together, what is the result?

When the marginal cost curve lies below the average variable cost curve, what is happening to the average variable cost?

If AVC is subtracted from the ATC, what is the result?

When average total cost is decreasing as output expands, what can we conclude?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters