Question 1

Which of the following best describes the interest paid on a bank loan by a local ice cream producer?

Accepted Answer

A)  It is not considered by an economist when calculating the cost of running the ice cream business. 
B)  It is an implicit cost for the ice cream producer. 
C)  It is an explicit cost for the ice cream producer. 
D)  It is not considered by an accountant when calculating the cost of running the ice cream business. 
A)  It is not considered by an economist when calculating the cost of running the ice cream business. 
B)  It is an implicit cost for the ice cream producer. 
C)  It is an explicit cost for the ice cream producer. 
D)  It is not considered by an accountant when calculating the cost of running the ice cream business.

Question 2

Which of the following describes an implicit cost?

Accepted Answer

A)  There is no opportunity cost involved. 
B)  They do not require an outlay of money. 
C)  Accountants include these costs in total costs. 
D)  They are an out-of-pocket expense. 
A)  There is no opportunity cost involved. 
B)  They do not require an outlay of money. 
C)  Accountants include these costs in total costs. 
D)  They are an out-of-pocket expense.

Question 3

Economists define the long run as any production time period lasting over one year.

Accepted Answer

A) True 
 B)False

Question 4

A firm's average fixed cost when producing 2000 units of output equals $10. When only 1000 units of output are produced, what is the average fixed cost?

Accepted Answer

A)  $5 
B)  $10 
C)  $20 
D)  $25 
A)  $5 
B)  $10 
C)  $20 
D)  $25

Question 5

FIGURE 7-3
  
-Refer to Figure 7-3. Which is the average variable cost curve?

Accepted Answer

A)  the curve labelled A 
B)  the curve labelled B 
C)  the curve labelled C 
D)  the curve labelled D 
A)  the curve labelled A 
B)  the curve labelled B 
C)  the curve labelled C 
D)  the curve labelled D

Question 6

Diseconomies of scale are present when the long-run average total cost of production declines as output expands.

Accepted Answer

A) True 
 B)False

Question 7

How long is the short run?

Accepted Answer

A)  any period of time less than one month 
B)  the time frame in which all resources are fixed 
C)  the time frame in which some resources are fixed 
D)  any period of time less than one year 
A)  any period of time less than one month 
B)  the time frame in which all resources are fixed 
C)  the time frame in which some resources are fixed 
D)  any period of time less than one year

Question 8

This figure shows the long-run average total cost curve for a firm that produces basketballs, along with four short-run average total cost curves. Each of the short-run average total cost curves corresponds to a different plant size. SRATC₁ corresponds to Plant size 1, SRATC₂ corresponds to Plant size 2, and so forth.
FIGURE 7-6
  
-Refer to Figure 7-6. Which plant size is optimal for the firm to produce qC units of output each week?

Accepted Answer

A)  Plant 2 
B)  Plant 3 
C)  Plant 4 
D)  Plant 5 
A)  Plant 2 
B)  Plant 3 
C)  Plant 4 
D)  Plant 5

Question 9

Which of the following best illustrates the relationship between the average costs and marginal cost?

Accepted Answer

A)  When marginal cost is greater than average total cost, average total cost is increasing. 
B)  When average fixed cost is falling, marginal cost must be less than average fixed cost. 
C)  When marginal cost is less than average total cost, average total cost is increasing. 
D)  When average variable cost is falling, marginal cost must be greater than average variable cost. 
A)  When marginal cost is greater than average total cost, average total cost is increasing. 
B)  When average fixed cost is falling, marginal cost must be less than average fixed cost. 
C)  When marginal cost is less than average total cost, average total cost is increasing. 
D)  When average variable cost is falling, marginal cost must be greater than average variable cost.

Question 10

TABLE 7-3
  
-Refer to Table 7-3. At what level of output (in thousands) is average total cost minimized?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 11

What relationship does a production function show?

Accepted Answer

A)  the relationship between inputs and the maximum output that can be produced from those inputs 
B)  the relationship between the production of goods and profits earned from the sale of those goods 
C)  the relationship between a firm's implicit and explicit costs and revenues they earn from sales 
D)  the relationship between variable inputs and fixed inputs 
A)  the relationship between inputs and the maximum output that can be produced from those inputs 
B)  the relationship between the production of goods and profits earned from the sale of those goods 
C)  the relationship between a firm's implicit and explicit costs and revenues they earn from sales 
D)  the relationship between variable inputs and fixed inputs

Question 12

Total cost equals total variable cost plus marginal cost.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is an example of an implicit cost of production?

Accepted Answer

A)  the opportunity cost of space in your home that is used for a home office 
B)  the wage that high school students could have earned if they worked somewhere else 
C)  the wages paid to high school students who work in a fast-food restaurant 
D)  the cost of leather used in manufacturing furniture 
A)  the opportunity cost of space in your home that is used for a home office 
B)  the wage that high school students could have earned if they worked somewhere else 
C)  the wages paid to high school students who work in a fast-food restaurant 
D)  the cost of leather used in manufacturing furniture

Question 14

FIGURE 7-1
  
-Refer to Figure 7-1. If the firm's goal is to maximize weekly output, how many workers should the firm employ each week?

Accepted Answer

A)  one worker 
B)  two workers 
C)  three workers 
D)  four workers 
A)  one worker 
B)  two workers 
C)  three workers 
D)  four workers

Question 15

In the short run, some costs are fixed.

Accepted Answer

A) True 
 B)False

Question 16

In the short run, all costs are variable.

Accepted Answer

A) True 
 B)False

Question 17

During the short-run period of the production process, which of the following best describes a firm?

Accepted Answer

A)  It is unable to vary all of its factors of production. 
B)  It is able to vary only some of its factors of production. 
C)  It is unable to vary any of its factors of production. 
D)  It is able to vary the size of its plant. 
A)  It is unable to vary all of its factors of production. 
B)  It is able to vary only some of its factors of production. 
C)  It is unable to vary any of its factors of production. 
D)  It is able to vary the size of its plant.

Question 18

If total cost increases as output increases, then what can we conclude about marginal cost?

Accepted Answer

A)  It must be equal to zero. 
B)  It must be increasing. 
C)  It must be positive. 
D)  It must be negative. 
A)  It must be equal to zero. 
B)  It must be increasing. 
C)  It must be positive. 
D)  It must be negative.

Question 19

The law of diminishing marginal product provides an explanation for why average total cost eventually increases as output is expanded in the short run.

Accepted Answer

A) True 
 B)False

Question 20

What is the term for the lowest level of output at which a firm's goods are produced at minimum long-run average total cost?

Accepted Answer

A)  the point of diminishing returns 
B)  the minimum total product 
C)  the minimum efficient scale 
D)  the point of zero marginal cost 
A)  the point of diminishing returns 
B)  the minimum total product 
C)  the minimum efficient scale 
D)  the point of zero marginal cost

Which of the following best describes the interest paid on a bank loan by a local ice cream producer?

Which of the following describes an implicit cost?

Economists define the long run as any production time period lasting over one year.

A firm's average fixed cost when producing 2000 units of output equals $10. When only 1000 units of output are produced, what is the average fixed cost?

FIGURE 7-3 -Refer to Figure 7-3. Which is the average variable cost curve?

Diseconomies of scale are present when the long-run average total cost of production declines as output expands.

How long is the short run?

Which of the following best illustrates the relationship between the average costs and marginal cost?

TABLE 7-3 -Refer to Table 7-3. At what level of output (in thousands) is average total cost minimized?

What relationship does a production function show?

Total cost equals total variable cost plus marginal cost.

Which of the following is an example of an implicit cost of production?

FIGURE 7-1 -Refer to Figure 7-1. If the firm's goal is to maximize weekly output, how many workers should the firm employ each week?

In the short run, some costs are fixed.

In the short run, all costs are variable.

During the short-run period of the production process, which of the following best describes a firm?

If total cost increases as output increases, then what can we conclude about marginal cost?

The law of diminishing marginal product provides an explanation for why average total cost eventually increases as output is expanded in the short run.

What is the term for the lowest level of output at which a firm's goods are produced at minimum long-run average total cost?

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

Which of the following best describes the interest paid on a bank loan by a local ice cream producer?

Which of the following describes an implicit cost?

Economists define the long run as any production time period lasting over one year.

A firm's average fixed cost when producing 2000 units of output equals $10. When only 1000 units of output are produced, what is the average fixed cost?

FIGURE 7-3 -Refer to Figure 7-3. Which is the average variable cost curve?

Diseconomies of scale are present when the long-run average total cost of production declines as output expands.

How long is the short run?

Which of the following best illustrates the relationship between the average costs and marginal cost?

TABLE 7-3 -Refer to Table 7-3. At what level of output (in thousands) is average total cost minimized?

What relationship does a production function show?

Total cost equals total variable cost plus marginal cost.

Which of the following is an example of an implicit cost of production?

FIGURE 7-1 -Refer to Figure 7-1. If the firm's goal is to maximize weekly output, how many workers should the firm employ each week?

In the short run, some costs are fixed.

In the short run, all costs are variable.

During the short-run period of the production process, which of the following best describes a firm?

If total cost increases as output increases, then what can we conclude about marginal cost?

The law of diminishing marginal product provides an explanation for why average total cost eventually increases as output is expanded in the short run.

What is the term for the lowest level of output at which a firm's goods are produced at minimum long-run average total cost?

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