Question 1

Takeover bids (and the potential for such bids)

Accepted Answer

A)  increase the incentive of corporate managers to perform efficiently. 
B)  increase the likelihood that managers will be able to gain at the expense of stockholders. 
C)  are more likely to occur when a company is producing efficiently and operating profitably. 
D)  serve no useful economic purpose. 
A)  increase the incentive of corporate managers to perform efficiently. 
B)  increase the likelihood that managers will be able to gain at the expense of stockholders. 
C)  are more likely to occur when a company is producing efficiently and operating profitably. 
D)  serve no useful economic purpose.

Question 2

Suppose you value watching a movie at $5. You rent it from your local movie rental store for $3.50 for one night. You do not get a chance to watch it, so you decide to keep it an extra day and pay a late fee of $2. Your decision is

Accepted Answer

A)  incorrect; you paid $5.50 to watch a movie you valued at only $5. You should have taken the movie back. 
B)  incorrect; you should have returned the movie and rented it later. 
C)  correct; the $3.50 paid for the first night is a sunk cost and is not relevant in your decision to keep it an additional night. 
D)  correct; you value watching the movie at $5 per night, so keeping it an extra day increases your value of the movie to $10. 
A)  incorrect; you paid $5.50 to watch a movie you valued at only $5. You should have taken the movie back. 
B)  incorrect; you should have returned the movie and rented it later. 
C)  correct; the $3.50 paid for the first night is a sunk cost and is not relevant in your decision to keep it an additional night. 
D)  correct; you value watching the movie at $5 per night, so keeping it an extra day increases your value of the movie to $10.

Question 3

Use the figure to answer the following question(s).
Figure 8-10
 
Using Figure 8-10, calculate the firm's approximate total cost when average total cost is at a minimum.

Accepted Answer

A)  $60 
B)  $80 
C)  $100 
D)  $120 
A)  $60 
B)  $80 
C)  $100 
D)  $120

Question 4

A downward-sloping portion of a long-run average total cost curve is the result of

Accepted Answer

A)  economies of scale. 
B)  diseconomies of scale. 
C)  diminishing returns. 
D)  the existence of fixed resources. 
A)  economies of scale. 
B)  diseconomies of scale. 
C)  diminishing returns. 
D)  the existence of fixed resources.

Question 5

In the long run, a firm might experience rising per-unit costs due to

Accepted Answer

A)  economies of scale. 
B)  diseconomies of scale. 
C)  the law of supply. 
D)  the law of diminishing marginal returns. 
A)  economies of scale. 
B)  diseconomies of scale. 
C)  the law of supply. 
D)  the law of diminishing marginal returns.

Question 6

Sunk or "historical" costs are costs

Accepted Answer

A)  associated with current operational decisions. 
B)  that have already been incurred as the result of past decisions. 
C)  that add to the firm's marginal costs. 
D)  that form the major component of the firm's variable costs. 
A)  associated with current operational decisions. 
B)  that have already been incurred as the result of past decisions. 
C)  that add to the firm's marginal costs. 
D)  that form the major component of the firm's variable costs.

Question 7

A 10-cent-per-box tax on producers of cigars will

Accepted Answer

A)  shift the firm's ATC and MC curves upward by the full amount of the tax. 
B)  induce the firm to produce less but will not shift the firm's MC curve. 
C)  shift the firm's ATC and MC curves downward by the full amount of the tax. 
D)  shift the MC curve upward but will not cause any shift in the ATC curve. 
A)  shift the firm's ATC and MC curves upward by the full amount of the tax. 
B)  induce the firm to produce less but will not shift the firm's MC curve. 
C)  shift the firm's ATC and MC curves downward by the full amount of the tax. 
D)  shift the MC curve upward but will not cause any shift in the ATC curve.

Question 8

In the short run, the firm's average fixed costs

Accepted Answer

A)  always increase as output increases. 
B)  always decline as output increases. 
C)  equal zero. 
D)  remain constant as output expands. 
A)  always increase as output increases. 
B)  always decline as output increases. 
C)  equal zero. 
D)  remain constant as output expands.

Question 9

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

Accepted Answer

A)  $40. 
B)  $60. 
C)  $6,000. 
D)  $8,000. 
A)  $40. 
B)  $60. 
C)  $6,000. 
D)  $8,000.

Question 10

Long-run economies of scale exist when the long-run average cost curve

Accepted Answer

A)  rises. 
B)  remains constant. 
C)  falls. 
D)  does not exist. 
A)  rises. 
B)  remains constant. 
C)  falls. 
D)  does not exist.

Question 11

Use the figure to answer the following question(s).
Figure 8-3
 
Using Figure 8-3, calculate the total cost of producing four units.

Accepted Answer

A)  $10 
B)  $15 
C)  $60 
D)  $75 
A)  $10 
B)  $15 
C)  $60 
D)  $75

Question 12

Figure 8-14 The following question(s) refer(s) to the below cost curves for one very small firm in a large market.
 
Refer to Figure 8-14. If the firm produces 15 units of output, its average fixed cost is

Accepted Answer

A)  4. 
B)  5. 
C)  6. 
D)  60. 
A)  4. 
B)  5. 
C)  6. 
D)  60.

Question 13

Use the figure to answer the following question(s).
Figure 8-3
 
Using Figure 8-3, calculate the total variable cost of producing three units.

Accepted Answer

A)  $10 
B)  $15 
C)  $30 
D)  $45 
A)  $10 
B)  $15 
C)  $30 
D)  $45

Question 14

Use the figure to answer the following question(s).
Figure 8-2
 
According to Figure 8-2, at what output would a properly constructed marginal cost curve cross the ATC curve?

Accepted Answer

A)  15 
B)  20 
C)  25 
D)  30 
A)  15 
B)  20 
C)  25 
D)  30

Question 15

A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $300. The utilities, to be paid by the owner, cost $100 per month if the house is occupied; otherwise zero. If the owner wishes to minimize her losses from the house, 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.) (Hint: Remember the concept of sunk cost.)

Accepted Answer

A)  $0 
B)  $100 
C)  $200 
D)  $400 
A)  $0 
B)  $100 
C)  $200 
D)  $400

Question 16

If most firms in an industry are earning a 7 percent rate of return on their assets, but your business is earning 9 percent, your rate of economic profit is

Accepted Answer

A)  minus 2 percent. 
B)  2 percent. 
C)  9 percent. 
D)  16 percent. 
A)  minus 2 percent. 
B)  2 percent. 
C)  9 percent. 
D)  16 percent.

Question 17

The long-run average total cost (LRATC) curve

Accepted Answer

A)  indicates the per-unit cost of producing various rates of output with a specific size of plant but variable levels of labor and technology. 
B)  indicates the minimum per-unit cost that can be achieved at various output rates when the firm is free to choose among plant sizes. 
C)  will be falling when diseconomies of scale are present and rising when economies of scale are present. 
D)  is a U-shaped curve. 
E)  is both a and d above. 
A)  indicates the per-unit cost of producing various rates of output with a specific size of plant but variable levels of labor and technology. 
B)  indicates the minimum per-unit cost that can be achieved at various output rates when the firm is free to choose among plant sizes. 
C)  will be falling when diseconomies of scale are present and rising when economies of scale are present. 
D)  is a U-shaped curve. 
E)  is both a and d above.

Question 18

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

Accepted Answer

A)  $5 
B)  $7 
C)  $8 
D)  $15 
A)  $5 
B)  $7 
C)  $8 
D)  $15

Question 19

Use the figure to answer the following question(s).
Figure 8-2
 
The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-2. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Accepted Answer

A)  10 
B)  15 
C)  20 
D)  25 
A)  10 
B)  15 
C)  20 
D)  25

Question 20

Which of the following provides the best explanation for diseconomies of scale?

Accepted Answer

A)  the firm is too small to take advantage of specialization. 
B)  large management structures may be bureaucratic and inefficient. 
C)  if there are too many employees, the work place becomes crowded and people become less productive. 
D)  average fixed costs are rising. 
A)  the firm is too small to take advantage of specialization. 
B)  large management structures may be bureaucratic and inefficient. 
C)  if there are too many employees, the work place becomes crowded and people become less productive. 
D)  average fixed costs are rising.

Takeover bids (and the potential for such bids)

Suppose you value watching a movie at $5. You rent it from your local movie rental store for $3.50 for one night. You do not get a chance to watch it, so you decide to keep it an extra day and pay a late fee of $2. Your decision is

Use the figure to answer the following question(s). Figure 8-10 Using Figure 8-10, calculate the firm's approximate total cost when average total cost is at a minimum.

A downward-sloping portion of a long-run average total cost curve is the result of

In the long run, a firm might experience rising per-unit costs due to

Sunk or "historical" costs are costs

A 10-cent-per-box tax on producers of cigars will

In the short run, the firm's average fixed costs

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

Long-run economies of scale exist when the long-run average cost curve

Use the figure to answer the following question(s). Figure 8-3 Using Figure 8-3, calculate the total cost of producing four units.

Figure 8-14 The following question(s) refer(s) to the below cost curves for one very small firm in a large market. Refer to Figure 8-14. If the firm produces 15 units of output, its average fixed cost is

Use the figure to answer the following question(s). Figure 8-3 Using Figure 8-3, calculate the total variable cost of producing three units.

Use the figure to answer the following question(s). Figure 8-2 According to Figure 8-2, at what output would a properly constructed marginal cost curve cross the ATC curve?

If most firms in an industry are earning a 7 percent rate of return on their assets, but your business is earning 9 percent, your rate of economic profit is

The long-run average total cost (LRATC) curve

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

Use the figure to answer the following question(s). Figure 8-2 The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-2. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Which of the following provides the best explanation for diseconomies of scale?

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

Takeover bids (and the potential for such bids)

Suppose you value watching a movie at $5. You rent it from your local movie rental store for $3.50 for one night. You do not get a chance to watch it, so you decide to keep it an extra day and pay a late fee of $2. Your decision is

Use the figure to answer the following question(s). Figure 8-10 Using Figure 8-10, calculate the firm's approximate total cost when average total cost is at a minimum.

A downward-sloping portion of a long-run average total cost curve is the result of

In the long run, a firm might experience rising per-unit costs due to

Sunk or "historical" costs are costs

A 10-cent-per-box tax on producers of cigars will

In the short run, the firm's average fixed costs

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

Long-run economies of scale exist when the long-run average cost curve

Use the figure to answer the following question(s). Figure 8-3 Using Figure 8-3, calculate the total cost of producing four units.

Figure 8-14 The following question(s) refer(s) to the below cost curves for one very small firm in a large market. Refer to Figure 8-14. If the firm produces 15 units of output, its average fixed cost is

Use the figure to answer the following question(s). Figure 8-3 Using Figure 8-3, calculate the total variable cost of producing three units.

Use the figure to answer the following question(s). Figure 8-2 According to Figure 8-2, at what output would a properly constructed marginal cost curve cross the ATC curve?

If most firms in an industry are earning a 7 percent rate of return on their assets, but your business is earning 9 percent, your rate of economic profit is

The long-run average total cost (LRATC) curve

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

Use the figure to answer the following question(s). Figure 8-2 The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-2. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Which of the following provides the best explanation for diseconomies of scale?

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