Question 1

"A good business decision maker will never sell a product for less than it costs to produce." This statement is

Accepted Answer

A)  true because diminishing returns always cause marginal costs to rise in the short run. 
B)  false because diminishing returns always cause fixed costs to rise in the short run. 
C)  true because it clearly differentiates between accounting profit and economic profit. 
D)  false because a business decision maker may be covering his current variable costs even though he has failed to cover all previous production costs. 
A)  true because diminishing returns always cause marginal costs to rise in the short run. 
B)  false because diminishing returns always cause fixed costs to rise in the short run. 
C)  true because it clearly differentiates between accounting profit and economic profit. 
D)  false because a business decision maker may be covering his current variable costs even though he has failed to cover all previous production costs.

Question 2

Use the figure to answer the following question(s).
Figure 8-8
 
In Figure 8-8, which output level would be most closely associated with the point where diminishing marginal returns have begun?

Accepted Answer

A)  4 
B)  5 
C)  6 
D)  8 
A)  4 
B)  5 
C)  6 
D)  8

Question 3

If a firm doubles all of its inputs and its output triples, it is said to be experiencing

Accepted Answer

A)  diminishing marginal returns. 
B)  increasing marginal returns. 
C)  diseconomies of scale. 
D)  economies of scale. 
E)  constant average costs. 
A)  diminishing marginal returns. 
B)  increasing marginal returns. 
C)  diseconomies of scale. 
D)  economies of scale. 
E)  constant average costs.

Question 4

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's

Accepted Answer

A)  economic profit. 
B)  accounting profit. 
C)  opportunity cost of capital. 
D)  long-run average total cost. 
A)  economic profit. 
B)  accounting profit. 
C)  opportunity cost of capital. 
D)  long-run average total cost.

Question 5

Use the table below to answer the following question.
 
What is the marginal cost of producing the third unit of output?

Accepted Answer

A)  $22 
B)  $23.33 
C)  $73.33 
D)  This cannot be determined from the data. 
A)  $22 
B)  $23.33 
C)  $73.33 
D)  This cannot be determined from the data.

Question 6

Accounting costs are often unsatisfactory from the economist's point of view because

Accepted Answer

A)  they fail to allow for depreciation, the wearing out of capital assets during a period. 
B)  they often exclude the opportunity costs of the firm's equity capital. 
C)  accountants attempt to minimize costs in order to make profits look good. 
D)  accounting procedures are designed to overstate costs in order to minimize business tax liability. 
A)  they fail to allow for depreciation, the wearing out of capital assets during a period. 
B)  they often exclude the opportunity costs of the firm's equity capital. 
C)  accountants attempt to minimize costs in order to make profits look good. 
D)  accounting procedures are designed to overstate costs in order to minimize business tax liability.

Question 7

Use the table below to answer the following question.
 
What is the average total cost at an output level of four units?

Accepted Answer

A)  $1,200 
B)  $1,400 
C)  $1,500 
D)  $2,000 
A)  $1,200 
B)  $1,400 
C)  $1,500 
D)  $2,000

Question 8

Mary owns her own business and works full time in the store without paying herself a salary. She has $20,000 of her own money invested in the store that she withdrew from her savings account, which earned 10 percent interest. She was offered a job last year making $28,000 per year but turned it down. If Mary's accounting statements show revenues of $100,000 and accounting costs of $60,000, then Mary's

Accepted Answer

A)  accounting profit is $20,000 and her economic profit is zero. 
B)  accounting profit is $40,000 and she is making an economic loss of $8,000. 
C)  accounting profit is $40,000 and her economic profit is $10,000. 
D)  accounting and economic profit is $40,000. 
A)  accounting profit is $20,000 and her economic profit is zero. 
B)  accounting profit is $40,000 and she is making an economic loss of $8,000. 
C)  accounting profit is $40,000 and her economic profit is $10,000. 
D)  accounting and economic profit is $40,000.

Question 9

The AB Manufacturing Company has hired an economist to evaluate its financial situation. She explains to the board of directors that the company is making zero economic profit. Should the company go out of business?

Accepted Answer

The company should remain operating. Ear

Question 10

Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward?

Accepted Answer

A)  an increase in the price of fertilizer 
B)  an increase in the tax on diesel fuel, which is used by the farmer 
C)  the development of a new, more efficient corn harvester 
D)  the adoption of a regulation requiring farmers to treat their crops with three new pesticides. 
A)  an increase in the price of fertilizer 
B)  an increase in the tax on diesel fuel, which is used by the farmer 
C)  the development of a new, more efficient corn harvester 
D)  the adoption of a regulation requiring farmers to treat their crops with three new pesticides.

Question 11

The average fixed costs of a firm equal

Accepted Answer

A)  implicit costs divided by output. 
B)  explicit costs divided by output. 
C)  total cost minus variable cost. 
D)  (total cost minus variable cost) divided by output. 
A)  implicit costs divided by output. 
B)  explicit costs divided by output. 
C)  total cost minus variable cost. 
D)  (total cost minus variable cost) divided by output.

Question 12

The law of diminishing returns

Accepted Answer

A)  explains why marginal cost eventually increases as output expands. 
B)  implies that average fixed cost will remain unchanged as output expands. 
C)  is true for physical production activities but not for activities such as studying. 
D)  applies to a capitalist economy but would be irrelevant if the means of production were owned by the state. 
A)  explains why marginal cost eventually increases as output expands. 
B)  implies that average fixed cost will remain unchanged as output expands. 
C)  is true for physical production activities but not for activities such as studying. 
D)  applies to a capitalist economy but would be irrelevant if the means of production were owned by the state.

Question 13

The most important implicit cost generally omitted from the accounting statement of a firm is the

Accepted Answer

A)  rental cost of machinery. 
B)  cost of compliance with government regulations. 
C)  opportunity cost of the equity capital invested by the owners. 
D)  accounting cost incurred as the result of tax compliance. 
A)  rental cost of machinery. 
B)  cost of compliance with government regulations. 
C)  opportunity cost of the equity capital invested by the owners. 
D)  accounting cost incurred as the result of tax compliance.

Question 14

If high-level executives of a company award themselves sizable bonuses even though the firm they manage is making losses and performing poorly, this event is most likely to arise because of

Accepted Answer

A)  the law of diminishing marginal returns. 
B)  competition among business firms for high-level executives. 
C)  economies of scale. 
D)  the principal-agent problem. 
A)  the law of diminishing marginal returns. 
B)  competition among business firms for high-level executives. 
C)  economies of scale. 
D)  the principal-agent problem.

Question 15

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

Accepted Answer

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

Question 16

If you paid $100 for a truckload of cabbage on Monday, how much should you be willing to sell it for on Friday, the day before it spoils?

Accepted Answer

A)  $100 
B)  $100 plus normal accounting profit 
C)  $50 because it has lost value since Monday 
D)  whatever you can get for it 
A)  $100 
B)  $100 plus normal accounting profit 
C)  $50 because it has lost value since Monday 
D)  whatever you can get for it

Question 17

If the CEO of a large corporation uses the corporate jet to fly friends to the Super Bowl at company expense, this is most clearly an example of

Accepted Answer

A)  the duality problem. 
B)  the violation of ceteris paribus conditions. 
C)  a negative externality. 
D)  the principal-agent problem. 
A)  the duality problem. 
B)  the violation of ceteris paribus conditions. 
C)  a negative externality. 
D)  the principal-agent problem.

Question 18

The difference between zero accounting profit and zero economic profit is that

Accepted Answer

A)  economists include opportunity cost in zero economic profit, while accountants do not include opportunity cost in zero accounting profit. 
B)  economists do not include opportunity cost in zero economic profit, while accountants do include opportunity cost in zero accounting profit. 
C)  economists include opportunity cost in zero accounting profit, while accountants do not include opportunity cost in zero economic profit. 
D)  economists do not include opportunity cost in zero accounting profit, while accountants do include opportunity cost in zero economic profit. 
A)  economists include opportunity cost in zero economic profit, while accountants do not include opportunity cost in zero accounting profit. 
B)  economists do not include opportunity cost in zero economic profit, while accountants do include opportunity cost in zero accounting profit. 
C)  economists include opportunity cost in zero accounting profit, while accountants do not include opportunity cost in zero economic profit. 
D)  economists do not include opportunity cost in zero accounting profit, while accountants do include opportunity cost in zero economic profit.

Question 19

Which of the following 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)  the property taxes on a building owned by the firm 
C)  the rental income foregone because the business owns its building 
D)  the interest paid on outstanding loans of the business 
A)  the "competitive rate" salary the owner of the business pays herself for services provided 
B)  the property taxes on a building owned by the firm 
C)  the rental income foregone because the business owns its building 
D)  the interest paid on outstanding loans of the business

Question 20

Which of the following is most likely to reduce the incidence of employee shirking?

Accepted Answer

A)  use of the corporate business structure, rather than an individual proprietorship 
B)  closely relating the pay of workers to their productive contribution 
C)  payment of identical wage rates to all workers 
D)  providing workers with a year-end bonus if the business firm loses money during the year 
A)  use of the corporate business structure, rather than an individual proprietorship 
B)  closely relating the pay of workers to their productive contribution 
C)  payment of identical wage rates to all workers 
D)  providing workers with a year-end bonus if the business firm loses money during the year

"A good business decision maker will never sell a product for less than it costs to produce." This statement is

Use the figure to answer the following question(s). Figure 8-8 In Figure 8-8, which output level would be most closely associated with the point where diminishing marginal returns have begun?

If a firm doubles all of its inputs and its output triples, it is said to be experiencing

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's

Use the table below to answer the following question. What is the marginal cost of producing the third unit of output?

Accounting costs are often unsatisfactory from the economist's point of view because

Use the table below to answer the following question. What is the average total cost at an output level of four units?

The AB Manufacturing Company has hired an economist to evaluate its financial situation. She explains to the board of directors that the company is making zero economic profit. Should the company go out of business?

Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward?

The average fixed costs of a firm equal

The law of diminishing returns

The most important implicit cost generally omitted from the accounting statement of a firm is the

If high-level executives of a company award themselves sizable bonuses even though the firm they manage is making losses and performing poorly, this event is most likely to arise because of

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

If you paid $100 for a truckload of cabbage on Monday, how much should you be willing to sell it for on Friday, the day before it spoils?

If the CEO of a large corporation uses the corporate jet to fly friends to the Super Bowl at company expense, this is most clearly an example of

The difference between zero accounting profit and zero economic profit is that

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

Which of the following is most likely to reduce the incidence of employee shirking?

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

"A good business decision maker will never sell a product for less than it costs to produce." This statement is

Use the figure to answer the following question(s). Figure 8-8 In Figure 8-8, which output level would be most closely associated with the point where diminishing marginal returns have begun?

If a firm doubles all of its inputs and its output triples, it is said to be experiencing

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's

Use the table below to answer the following question. What is the marginal cost of producing the third unit of output?

Accounting costs are often unsatisfactory from the economist's point of view because

Use the table below to answer the following question. What is the average total cost at an output level of four units?

The AB Manufacturing Company has hired an economist to evaluate its financial situation. She explains to the board of directors that the company is making zero economic profit. Should the company go out of business?

Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward?

The average fixed costs of a firm equal

The law of diminishing returns

The most important implicit cost generally omitted from the accounting statement of a firm is the

If high-level executives of a company award themselves sizable bonuses even though the firm they manage is making losses and performing poorly, this event is most likely to arise because of

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

If you paid $100 for a truckload of cabbage on Monday, how much should you be willing to sell it for on Friday, the day before it spoils?

If the CEO of a large corporation uses the corporate jet to fly friends to the Super Bowl at company expense, this is most clearly an example of

The difference between zero accounting profit and zero economic profit is that

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

Which of the following is most likely to reduce the incidence of employee shirking?

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