Question 1

Which of the following will become smaller and smaller as the firm expands output?

Accepted Answer

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

Question 2

Which of the following represents a long-run adjustment?

Accepted Answer

A)  the hiring of four additional cashiers by a supermarket 
B)  a cutback on purchases of coke and iron ore by a steel manufacturer 
C)  construction of a new assembly-line plant by a car manufacturer 
D)  the extra dose of fertilizer used by a farmer on his wheat crop 
A)  the hiring of four additional cashiers by a supermarket 
B)  a cutback on purchases of coke and iron ore by a steel manufacturer 
C)  construction of a new assembly-line plant by a car manufacturer 
D)  the extra dose of fertilizer used by a farmer on his wheat crop

Question 3

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

Accepted Answer

A)  larger firms always have lower per-unit costs than smaller firms. 
B)  at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns. 
C)  diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large. 
D)  diseconomies of scale will be present at both small and large output rates. 
A)  larger firms always have lower per-unit costs than smaller firms. 
B)  at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns. 
C)  diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large. 
D)  diseconomies of scale will be present at both small and large output rates.

Question 4

The short run is a time period such that

Accepted Answer

A)  the existing firms in the market do not have sufficient time to change the amounts of any of the inputs that they employ. 
B)  the existing firms in the market do not have sufficient time to either increase or decrease their current rate of output. 
C)  the existing firms in the market do not have sufficient time to increase the size of their existing plant or build a new factory. 
D)  new firms may build plants and enter the industry. 
A)  the existing firms in the market do not have sufficient time to change the amounts of any of the inputs that they employ. 
B)  the existing firms in the market do not have sufficient time to either increase or decrease their current rate of output. 
C)  the existing firms in the market do not have sufficient time to increase the size of their existing plant or build a new factory. 
D)  new firms may build plants and enter the industry.

Question 5

Fixed costs are best defined as

Accepted Answer

A)  costs that do not vary with output. 
B)  costs that are at a minimum when output approaches the firm's capacity. 
C)  the amount that one more unit of output adds to total costs. 
D)  costs that decline as output increases. 
A)  costs that do not vary with output. 
B)  costs that are at a minimum when output approaches the firm's capacity. 
C)  the amount that one more unit of output adds to total costs. 
D)  costs that decline as output increases.

Question 6

Which of the following would most likely cause a firm's cost curve to shift downward?

Accepted Answer

A)  an increase in resource prices 
B)  an increase in government regulations 
C)  a decrease in taxes 
D)  an increase in demand for the firm's product 
A)  an increase in resource prices 
B)  an increase in government regulations 
C)  a decrease in taxes 
D)  an increase in demand for the firm's product

Question 7

If fixed costs are $200,000 and variable costs are $30 per unit over the relevant range of output, when 10,000 units are produced, the average total cost will be

Accepted Answer

A)  $20. 
B)  $30. 
C)  $50. 
D)  $70. 
A)  $20. 
B)  $30. 
C)  $50. 
D)  $70.

Question 8

Use the figure to answer the following question(s).
Figure 8-3
 
The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-3. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Accepted Answer

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

Question 9

Figure 8-12  
In Figure 8-12, which of the following would most likely cause the average total cost curve of a firm producing molded plastic chairs to shift from ATC 1 to ATC 2?

Accepted Answer

A)  an increase in demand for plastic chairs 
B)  an increase in the market price of plastic chairs 
C)  an increase in the price of the plastic used to produce the chairs 
D)  a reduction in corporate income taxes 
A)  an increase in demand for plastic chairs 
B)  an increase in the market price of plastic chairs 
C)  an increase in the price of the plastic used to produce the chairs 
D)  a reduction in corporate income taxes

Question 10

Profit-sharing plans, where employees receive bonuses in proportion to the company's profits,

Accepted Answer

A)  reduce the principal-agent problem. 
B)  are intended to reduce the number of employees who are residual claimants. 
C)  eliminate shirking problems. 
D)  are essentially gifts to employees and do not generate any benefit for the firm's owners. 
A)  reduce the principal-agent problem. 
B)  are intended to reduce the number of employees who are residual claimants. 
C)  eliminate shirking problems. 
D)  are essentially gifts to employees and do not generate any benefit for the firm's owners.

Question 11

Use the table below to answer the following question.
 
Average total cost is at a minimum when the output level is

Accepted Answer

A)  three units. 
B)  four units. 
C)  five units. 
D)  six units. 
A)  three units. 
B)  four units. 
C)  five units. 
D)  six units.

Question 12

A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $1,000. The owner's cost of utilities is $100 if the house is unoccupied but $300 if the owner rents it out. If the owner wishes to minimize her losses from the house while away, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.)

Accepted Answer

A)  $200 
B)  $300 
C)  $1,100 
D)  $1,300 
A)  $200 
B)  $300 
C)  $1,100 
D)  $1,300

Question 13

Libby has a business using no owned capital and makes an accounting profit of $52,000 a year. Libby could have worked for Verizon Wireless with a pay of $35,000 a year, but she would not have had time to run her business. The economic profit from Libby's business per year is

Accepted Answer

A)  $87,000. 
B)  $35,000. 
C)  $17,000. 
D)  − $17,000. 
A)  $87,000. 
B)  $35,000. 
C)  $17,000. 
D)  − $17,000.

Question 14

The firm's average total costs will be a minimum at the output level where the

Accepted Answer

A)  firm just begins to confront diminishing returns to the variable factors. 
B)  marginal costs are a minimum. 
C)  firm's average fixed costs are at their minimum. 
D)  marginal cost curve crosses the firm's average total cost curve. 
A)  firm just begins to confront diminishing returns to the variable factors. 
B)  marginal costs are a minimum. 
C)  firm's average fixed costs are at their minimum. 
D)  marginal cost curve crosses the firm's average total cost curve.

Question 15

Use the figure to answer the following question(s).
Figure 8-1
 
At what output in Figure 8-1 would the firm's per-unit cost of production be minimized?

Accepted Answer

A)  3 
B)  4 
C)  5 
D)  6 
A)  3 
B)  4 
C)  5 
D)  6

Question 16

Use the figure to answer the following question(s).
Figure 8-4
 
Using Figure 8-4, calculate the firm's total cost of producing four units of output.

Accepted Answer

A)  $4 
B)  $8 
C)  $12 
D)  $16 
A)  $4 
B)  $8 
C)  $12 
D)  $16

Question 17

The average variable cost curve and average total cost curve become closer together as output increases because

Accepted Answer

A)  the marginal cost curve intersects the average total cost curve at its minimum. 
B)  average fixed cost remains constant as output rises. 
C)  average fixed cost, which is the difference between them, declines with output. 
D)  output is rising more rapidly than inputs are being increased. 
A)  the marginal cost curve intersects the average total cost curve at its minimum. 
B)  average fixed cost remains constant as output rises. 
C)  average fixed cost, which is the difference between them, declines with output. 
D)  output is rising more rapidly than inputs are being increased.

Question 18

A business owned by a single individual who is fully liable for its debts is called

Accepted Answer

A)  a corporation. 
B)  a proprietorship. 
C)  a partnership. 
D)  an agency. 
A)  a corporation. 
B)  a proprietorship. 
C)  a partnership. 
D)  an agency.

Question 19

Which of the following is an implication of the law of diminishing returns?

Accepted Answer

A)  Total output will decline as more workers are hired. 
B)  In the long run, average total cost will eventually decline as output is expanded. 
C)  In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost. 
D)  A doubling of all inputs will lead to more than a doubling of output. 
A)  Total output will decline as more workers are hired. 
B)  In the long run, average total cost will eventually decline as output is expanded. 
C)  In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost. 
D)  A doubling of all inputs will lead to more than a doubling of output.

Question 20

Use the figure to answer the following question(s).
Figure 8-10
 
In Figure 8-10, which output would minimize the firm's average total cost of production?

Accepted Answer

A)  4 
B)  6 
C)  8 
D)  10 
A)  4 
B)  6 
C)  8 
D)  10

Which of the following will become smaller and smaller as the firm expands output?

Which of the following represents a long-run adjustment?

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

The short run is a time period such that

Fixed costs are best defined as

Which of the following would most likely cause a firm's cost curve to shift downward?

If fixed costs are $200,000 and variable costs are $30 per unit over the relevant range of output, when 10,000 units are produced, the average total cost will be

Use the figure to answer the following question(s). Figure 8-3 The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-3. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Figure 8-12 In Figure 8-12, which of the following would most likely cause the average total cost curve of a firm producing molded plastic chairs to shift from ATC ₁ to ATC ₂?

Profit-sharing plans, where employees receive bonuses in proportion to the company's profits,

Use the table below to answer the following question. Average total cost is at a minimum when the output level is

Libby has a business using no owned capital and makes an accounting profit of $52,000 a year. Libby could have worked for Verizon Wireless with a pay of $35,000 a year, but she would not have had time to run her business. The economic profit from Libby's business per year is

The firm's average total costs will be a minimum at the output level where the

Use the figure to answer the following question(s). Figure 8-1 At what output in Figure 8-1 would the firm's per-unit cost of production be minimized?

Use the figure to answer the following question(s). Figure 8-4 Using Figure 8-4, calculate the firm's total cost of producing four units of output.

The average variable cost curve and average total cost curve become closer together as output increases because

A business owned by a single individual who is fully liable for its debts is called

Which of the following is an implication of the law of diminishing returns?

Use the figure to answer the following question(s). Figure 8-10 In Figure 8-10, which output would minimize the firm's average total cost of production?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 8: Costs and the Supply of Goods

Which of the following will become smaller and smaller as the firm expands output?

Which of the following represents a long-run adjustment?

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

The short run is a time period such that

Fixed costs are best defined as

Which of the following would most likely cause a firm's cost curve to shift downward?

If fixed costs are $200,000 and variable costs are $30 per unit over the relevant range of output, when 10,000 units are produced, the average total cost will be

Use the figure to answer the following question(s). Figure 8-3 The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-3. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Figure 8-12 In Figure 8-12, which of the following would most likely cause the average total cost curve of a firm producing molded plastic chairs to shift from ATC 1 to ATC 2?

Profit-sharing plans, where employees receive bonuses in proportion to the company's profits,

Use the table below to answer the following question. Average total cost is at a minimum when the output level is

Libby has a business using no owned capital and makes an accounting profit of $52,000 a year. Libby could have worked for Verizon Wireless with a pay of $35,000 a year, but she would not have had time to run her business. The economic profit from Libby's business per year is

The firm's average total costs will be a minimum at the output level where the

Use the figure to answer the following question(s). Figure 8-1 At what output in Figure 8-1 would the firm's per-unit cost of production be minimized?

Use the figure to answer the following question(s). Figure 8-4 Using Figure 8-4, calculate the firm's total cost of producing four units of output.

The average variable cost curve and average total cost curve become closer together as output increases because

A business owned by a single individual who is fully liable for its debts is called

Which of the following is an implication of the law of diminishing returns?

Use the figure to answer the following question(s). Figure 8-10 In Figure 8-10, which output would minimize the firm's average total cost of production?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Figure 8-12 In Figure 8-12, which of the following would most likely cause the average total cost curve of a firm producing molded plastic chairs to shift from ATC ₁ to ATC ₂?