Question 1

Use the figure to answer the following question(s).
Figure 8-9
 
In Figure 8-9, which output would minimize the firm's average total cost of production?

Accepted Answer

A)  30 
B)  40 
C)  50 
D)  60 
A)  30 
B)  40 
C)  50 
D)  60

Question 2

In recent years, the number of farms has fallen while the average farm size has increased. What concept may explain this phenomenon?

Accepted Answer

A)  diminishing marginal returns 
B)  declining productivity 
C)  diseconomies of scale 
D)  economies of scale 
E)  good weather in midwestern states 
A)  diminishing marginal returns 
B)  declining productivity 
C)  diseconomies of scale 
D)  economies of scale 
E)  good weather in midwestern states

Question 3

The increase in total output that results from a unit increase in the employment of a variable input is equal to the input's

Accepted Answer

A)  total product. 
B)  marginal product. 
C)  average product. 
D)  marginal cost. 
A)  total product. 
B)  marginal product. 
C)  average product. 
D)  marginal cost.

Question 4

Normal profit is a term for

Accepted Answer

A)  explicit profit. 
B)  the competitive rate of return. 
C)  the accounting profit forgone. 
D)  pure economic profit. 
A)  explicit profit. 
B)  the competitive rate of return. 
C)  the accounting profit forgone. 
D)  pure economic profit.

Question 5

The normal rate of return on equity capital is also known as

Accepted Answer

A)  the explicit cost of capital. 
B)  the marginal cost of capital. 
C)  economic profit. 
D)  the opportunity cost of capital. 
A)  the explicit cost of capital. 
B)  the marginal cost of capital. 
C)  economic profit. 
D)  the opportunity cost of capital.

Question 6

Advantages of the corporate form of business organization include

Accepted Answer

A)  the ease of transferring ownership in a corporation. 
B)  the limited liability concept that protects the stockholder from potential debts incurred by the corporation. 
C)  the lack of employee shirking that occurs in corporations. 
D)  both a and b. 
A)  the ease of transferring ownership in a corporation. 
B)  the limited liability concept that protects the stockholder from potential debts incurred by the corporation. 
C)  the lack of employee shirking that occurs in corporations. 
D)  both a and b.

Question 7

If a firm produces nothing, which of the following costs will be zero?

Accepted Answer

A)  total cost 
B)  fixed cost 
C)  opportunity cost 
D)  variable cost 
A)  total cost 
B)  fixed cost 
C)  opportunity cost 
D)  variable cost

Question 8

The short run is the time period during which

Accepted Answer

A)  all of the firm's costs are fixed. 
B)  the value of the firm's assets starts to decay. 
C)  the firm can adjust all inputs freely. 
D)  some of the firm's input decisions are constrained by previous commitments. 
A)  all of the firm's costs are fixed. 
B)  the value of the firm's assets starts to decay. 
C)  the firm can adjust all inputs freely. 
D)  some of the firm's input decisions are constrained by previous commitments.

Question 9

Where marginal cost is less than average cost,

Accepted Answer

A)  opportunity cost must have been excluded from the calculation of marginal cost. 
B)  marginal cost must be falling. 
C)  marginal cost must be rising. 
D)  marginal cost may be rising, falling, or constant. 
A)  opportunity cost must have been excluded from the calculation of marginal cost. 
B)  marginal cost must be falling. 
C)  marginal cost must be rising. 
D)  marginal cost may be rising, falling, or constant.

Question 10

When would sunk costs be irrelevant for current decision making?

Accepted Answer

A)  when the sunk costs are computed using accounting methods 
B)  when the sunk costs are greater than variable costs 
C)  when the sunk costs have been incurred only a short time ago 
D)  Sunk cost are always irrelevant when making current decisions. 
A)  when the sunk costs are computed using accounting methods 
B)  when the sunk costs are greater than variable costs 
C)  when the sunk costs have been incurred only a short time ago 
D)  Sunk cost are always irrelevant when making current decisions.

Question 11

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer. What economic concept best explains this observation?

Accepted Answer

A)  the law of diminishing marginal utility 
B)  the law of diminishing returns 
C)  return equalization principle 
D)  the principal-agent problem 
A)  the law of diminishing marginal utility 
B)  the law of diminishing returns 
C)  return equalization principle 
D)  the principal-agent problem

Question 12

Which of the following items is most likely to be an implicit cost of production?

Accepted Answer

A)  the "competitive rate" salary the owner of the business pays herself for services provided 
B)  property taxes on a building owned by the firm 
C)  rental payments for a building utilized by the company and rented from another party 
D)  the interest income foregone on the equity capital invested by owners 
A)  the "competitive rate" salary the owner of the business pays herself for services provided 
B)  property taxes on a building owned by the firm 
C)  rental payments for a building utilized by the company and rented from another party 
D)  the interest income foregone on the equity capital invested by owners

Question 13

Mr. Capps recently built a dental floss factory in Montana. It cost $500,000 and is expected to last ten years. The plant can only be used to produce dental floss and will have no scrap value. When a recession occurs, the yearly revenue from the plant declines to $35,000, compared to costs of $25,000 just for the variable resources required to produce the current rate of output. Mr. Capps should

Accepted Answer

A)  shut down since he is experiencing economic losses (in other words, he will not get his $500,000 back). 
B)  reduce the price of dental floss if his demand is inelastic in order to increase his revenue. 
C)  raise the price of dental floss if his demand is elastic in order to increase his revenue. 
D)  continue to operate since he is covering his variable costs and the cost of the plant is a sunk cost. 
A)  shut down since he is experiencing economic losses (in other words, he will not get his $500,000 back). 
B)  reduce the price of dental floss if his demand is inelastic in order to increase his revenue. 
C)  raise the price of dental floss if his demand is elastic in order to increase his revenue. 
D)  continue to operate since he is covering his variable costs and the cost of the plant is a sunk cost.

Question 14

Which of the following must be true if average variable costs are decreasing?

Accepted Answer

A)  Average fixed cost exceeds average total cost. 
B)  Marginal cost exceeds average variable cost. 
C)  Marginal cost is less than average variable cost. 
D)  Marginal cost is less than average total cost. 
A)  Average fixed cost exceeds average total cost. 
B)  Marginal cost exceeds average variable cost. 
C)  Marginal cost is less than average variable cost. 
D)  Marginal cost is less than average total cost.

Question 15

What amount must be earned to induce investors to continue to supply the funds necessary to maintain a firm's capital assets?

Accepted Answer

A)  stockholder equity 
B)  the opportunity cost of capital 
C)  economic profit 
D)  accounting profit 
A)  stockholder equity 
B)  the opportunity cost of capital 
C)  economic profit 
D)  accounting profit

Question 16

James opened a baseball manufacturing operation, and initially the more balls he made, the lower the per-unit cost. Now, as output expands, his per-unit costs are rising. He concludes that diseconomies of scale have set in. Is he correct? Why?

Accepted Answer

Since diseconomies of scale apply to the

Question 17

The long-run average total cost curve

Accepted Answer

A)  is an envelope-shaped curve mapped out by the short-run average total cost curves for alternative plant sizes. 
B)  intersects the minimum point of each short-run average total cost curve for alternative plant sizes. 
C)  rises throughout its entire range when increasing returns are present. 
D)  falls throughout its entire range due to the law of diminishing returns. 
A)  is an envelope-shaped curve mapped out by the short-run average total cost curves for alternative plant sizes. 
B)  intersects the minimum point of each short-run average total cost curve for alternative plant sizes. 
C)  rises throughout its entire range when increasing returns are present. 
D)  falls throughout its entire range due to the law of diminishing returns.

Question 18

Economists refer to historical costs (irreversible costs already incurred) as

Accepted Answer

A)  implicit costs. 
B)  sunk costs. 
C)  opportunity costs. 
D)  variable costs. 
A)  implicit costs. 
B)  sunk costs. 
C)  opportunity costs. 
D)  variable costs.

Question 19

Which of the following is true?

Accepted Answer

A)  The difference between the ATC and AVC curves will decline as output expands. 
B)  The AFC will remain constant as output increases. 
C)  If ATC is increasing, then AVC must be greater than ATC. 
D)  Implicit costs and fixed costs are always the same. 
A)  The difference between the ATC and AVC curves will decline as output expands. 
B)  The AFC will remain constant as output increases. 
C)  If ATC is increasing, then AVC must be greater than ATC. 
D)  Implicit costs and fixed costs are always the same.

Question 20

In the long run, firms in many industries often experience falling average total costs as a result of

Accepted Answer

A)  gains through trade. 
B)  increasing marginal returns. 
C)  economies of scale. 
D)  lower fixed costs. 
A)  gains through trade. 
B)  increasing marginal returns. 
C)  economies of scale. 
D)  lower fixed costs.

Use the figure to answer the following question(s). Figure 8-9 In Figure 8-9, which output would minimize the firm's average total cost of production?

In recent years, the number of farms has fallen while the average farm size has increased. What concept may explain this phenomenon?

The increase in total output that results from a unit increase in the employment of a variable input is equal to the input's

Normal profit is a term for

The normal rate of return on equity capital is also known as

Advantages of the corporate form of business organization include

If a firm produces nothing, which of the following costs will be zero?

The short run is the time period during which

Where marginal cost is less than average cost,

When would sunk costs be irrelevant for current decision making?

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer. What economic concept best explains this observation?

Which of the following items is most likely to be an implicit cost of production?

Which of the following must be true if average variable costs are decreasing?

What amount must be earned to induce investors to continue to supply the funds necessary to maintain a firm's capital assets?

James opened a baseball manufacturing operation, and initially the more balls he made, the lower the per-unit cost. Now, as output expands, his per-unit costs are rising. He concludes that diseconomies of scale have set in. Is he correct? Why?

The long-run average total cost curve

Economists refer to historical costs (irreversible costs already incurred) as

Which of the following is true?

In the long run, firms in many industries often experience falling average total costs as a result of

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

Use the figure to answer the following question(s). Figure 8-9 In Figure 8-9, which output would minimize the firm's average total cost of production?

In recent years, the number of farms has fallen while the average farm size has increased. What concept may explain this phenomenon?

The increase in total output that results from a unit increase in the employment of a variable input is equal to the input's

Normal profit is a term for

The normal rate of return on equity capital is also known as

Advantages of the corporate form of business organization include

If a firm produces nothing, which of the following costs will be zero?

The short run is the time period during which

Where marginal cost is less than average cost,

When would sunk costs be irrelevant for current decision making?

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer. What economic concept best explains this observation?

Which of the following items is most likely to be an implicit cost of production?

Which of the following must be true if average variable costs are decreasing?

What amount must be earned to induce investors to continue to supply the funds necessary to maintain a firm's capital assets?

James opened a baseball manufacturing operation, and initially the more balls he made, the lower the per-unit cost. Now, as output expands, his per-unit costs are rising. He concludes that diseconomies of scale have set in. Is he correct? Why?

The long-run average total cost curve

Economists refer to historical costs (irreversible costs already incurred) as

Which of the following is true?

In the long run, firms in many industries often experience falling average total costs as a result of

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