Question 1

Which of the following is not an advantage of the corporate structure over proprietorship and partnership forms of business organization?

Accepted Answer

A)  Stockholders in the corporation have limited liability, whereas proprietors or partners have unlimited liability. 
B)  Ownership rights of a corporation may be transferred more easily. 
C)  Large investment funds are more easily attracted by the corporation. 
D)  Corporations are less likely to suffer from the principal-agent problem. 
A)  Stockholders in the corporation have limited liability, whereas proprietors or partners have unlimited liability. 
B)  Ownership rights of a corporation may be transferred more easily. 
C)  Large investment funds are more easily attracted by the corporation. 
D)  Corporations are less likely to suffer from the principal-agent problem.

Question 2

The landlord's cost of continuing to rent a house to Smith is

Accepted Answer

A)  the maintenance cost on the house (a constant under all options). 
B)  the maintenance cost plus depreciation on the house. 
C)  zero, since the construction costs of the house are sunk costs. 
D)  the revenue foregone as the result of not renting to the highest bidder other than Smith. 
A)  the maintenance cost on the house (a constant under all options). 
B)  the maintenance cost plus depreciation on the house. 
C)  zero, since the construction costs of the house are sunk costs. 
D)  the revenue foregone as the result of not renting to the highest bidder other than Smith.

Question 3

The sum of the explicit and implicit costs incurred in the production process is called

Accepted Answer

A)  fixed cost. 
B)  sunk cost. 
C)  marginal cost. 
D)  total cost. 
A)  fixed cost. 
B)  sunk cost. 
C)  marginal cost. 
D)  total cost.

Question 4

In the short run, a firm will eventually experience rising per-unit costs because of

Accepted Answer

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

Question 5

Kim used to work at "The Big One" accounting firm, and she earned $50,000 a year. She saved her money and has now invested $100,000 in her own firm. Profit is $20,000 a year, which Kim receives as her only compensation. She concludes that this is great because a 20 percent return is much better than the 8 percent she could get in another investment (the opportunity cost of the funds). What is wrong with this line of thinking?

Accepted Answer

While Kim is correct in understanding th

Question 6

A car leasing company that expands its size by buying its competitors may run the risk of increasing production costs due to

Accepted Answer

A)  diseconomies of scale. 
B)  economies of scale. 
C)  diminishing returns. 
D)  greater use of large-volume purchases. 
A)  diseconomies of scale. 
B)  economies of scale. 
C)  diminishing returns. 
D)  greater use of large-volume purchases.

Question 7

As a firm expands output, in the short run marginal costs will

Accepted Answer

A)  always decline as output expands. 
B)  increase at first but eventually level off and decline. 
C)  eventually increase as the firm experiences diminishing returns to the fixed factors of production. 
D)  initially increase at a decreasing rate but eventually increase at an increasing rate. 
A)  always decline as output expands. 
B)  increase at first but eventually level off and decline. 
C)  eventually increase as the firm experiences diminishing returns to the fixed factors of production. 
D)  initially increase at a decreasing rate but eventually increase at an increasing rate.

Question 8

Marginal cost is best defined as

Accepted Answer

A)  a cost that does not vary with the rate of output. 
B)  the difference between fixed and variable cost at any level of output. 
C)  the amount added to total cost when one more unit of output is produced. 
D)  the difference between price and average total cost at the profit-maximizing level of output. 
A)  a cost that does not vary with the rate of output. 
B)  the difference between fixed and variable cost at any level of output. 
C)  the amount added to total cost when one more unit of output is produced. 
D)  the difference between price and average total cost at the profit-maximizing level of output.

Question 9

Before entry into an industry, a profit-maximizing decision maker will compare the expected market price with the expected

Accepted Answer

A)  long-run average total cost. 
B)  short-run marginal cost. 
C)  long-run average variable cost. 
D)  short-run average total cost. 
A)  long-run average total cost. 
B)  short-run marginal cost. 
C)  long-run average variable cost. 
D)  short-run average total cost.

Question 10

When total revenue minus total economic cost is greater than zero, the firm is

Accepted Answer

A)  earning higher than normal profits. 
B)  earning the normal profit rate. 
C)  making economic losses. 
D)  earning economic profit but accounting losses. 
A)  earning higher than normal profits. 
B)  earning the normal profit rate. 
C)  making economic losses. 
D)  earning economic profit but accounting losses.

Question 11

As output is expanded, if MC is less than ATC,

Accepted Answer

A)  ATC must be at its minimum. 
B)  ATC must be at its maximum. 
C)  ATC must be decreasing. 
D)  the firm must be earning economic profit. 
A)  ATC must be at its minimum. 
B)  ATC must be at its maximum. 
C)  ATC must be decreasing. 
D)  the firm must be earning economic profit.

Question 12

Long-run diseconomies of scale exist over the range of output for which the long-run average cost curve is

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 13

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

Accepted Answer

A)  $20 
B)  $44 
C)  $70 
D)  This cannot be determined from the data. 
A)  $20 
B)  $44 
C)  $70 
D)  This cannot be determined from the data.

Question 14

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 15

Sunk costs

Accepted Answer

A)  are expenditures made in the past that cannot be regained no matter what is done now or in the future. 
B)  are a component of variable costs, but not fixed costs. 
C)  represent foregone opportunities, and therefore the firm's managers should consider these costs when they are making current decisions. 
D)  can be avoided if the firm goes out of business. 
A)  are expenditures made in the past that cannot be regained no matter what is done now or in the future. 
B)  are a component of variable costs, but not fixed costs. 
C)  represent foregone opportunities, and therefore the firm's managers should consider these costs when they are making current decisions. 
D)  can be avoided if the firm goes out of business.

Question 16

Which of the following is the best example of a fixed cost for a business?

Accepted Answer

A)  the insurance payment for the protection of a building owned by the firm 
B)  shipping charges for the delivery of products 
C)  managerial salaries paid 
D)  the total of medical insurance premiums on the firm's employees 
A)  the insurance payment for the protection of a building owned by the firm 
B)  shipping charges for the delivery of products 
C)  managerial salaries paid 
D)  the total of medical insurance premiums on the firm's employees

Question 17

For most firms, the major difference between accounting profit and economic profit is that

Accepted Answer

A)  explicit and implicit costs are included in the accounting profit while only explicit costs are included in economic profit. 
B)  accounting profit omits the salaries of managers, and therefore, it is generally greater than economic profit. 
C)  accounting profit is based on opportunity cost, whereas economic profit is based on market transactions. 
D)  accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit. 
A)  explicit and implicit costs are included in the accounting profit while only explicit costs are included in economic profit. 
B)  accounting profit omits the salaries of managers, and therefore, it is generally greater than economic profit. 
C)  accounting profit is based on opportunity cost, whereas economic profit is based on market transactions. 
D)  accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

Question 18

Use the figure to answer the following question(s).
Figure 8-2
 
Using Figure 8-2, calculate the firm's total cost of producing 30 units of output.

Accepted Answer

A)  $8 
B)  $120 
C)  $180 
D)  $240 
A)  $8 
B)  $120 
C)  $180 
D)  $240

Question 19

Al's Donuts produces about 600 dozen doughnuts daily. If flour prices increase 20 percent

Accepted Answer

A)  only marginal cost will shift up. 
B)  only marginal cost and average total cost will shift up. 
C)  marginal cost, average variable cost, and average total cost will shift up. 
D)  marginal cost, average total cost, and average fixed cost will shift up. 
A)  only marginal cost will shift up. 
B)  only marginal cost and average total cost will shift up. 
C)  marginal cost, average variable cost, and average total cost will shift up. 
D)  marginal cost, average total cost, and average fixed cost will shift up.

Question 20

If a firm increases its output and finds that its average total cost decreases as a result, this implies that

Accepted Answer

A)  marginal cost exceeds average total cost. 
B)  the cost of producing an additional unit of output is more than the average total cost. 
C)  average fixed cost is increasing. 
D)  average total cost exceeds marginal cost. 
A)  marginal cost exceeds average total cost. 
B)  the cost of producing an additional unit of output is more than the average total cost. 
C)  average fixed cost is increasing. 
D)  average total cost exceeds marginal cost.

Which of the following is not an advantage of the corporate structure over proprietorship and partnership forms of business organization?

The landlord's cost of continuing to rent a house to Smith is

The sum of the explicit and implicit costs incurred in the production process is called

In the short run, a firm will eventually experience rising per-unit costs because of

A car leasing company that expands its size by buying its competitors may run the risk of increasing production costs due to

As a firm expands output, in the short run marginal costs will

Marginal cost is best defined as

Before entry into an industry, a profit-maximizing decision maker will compare the expected market price with the expected

When total revenue minus total economic cost is greater than zero, the firm is

As output is expanded, if MC is less than ATC,

Long-run diseconomies of scale exist over the range of output for which the long-run average cost curve is

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

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

Sunk costs

Which of the following is the best example of a fixed cost for a business?

For most firms, the major difference between accounting profit and economic profit is that

Use the figure to answer the following question(s). Figure 8-2 Using Figure 8-2, calculate the firm's total cost of producing 30 units of output.

Al's Donuts produces about 600 dozen doughnuts daily. If flour prices increase 20 percent

If a firm increases its output and finds that its average total cost decreases as a result, this implies that

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

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Exam 8: Costs and the Supply of Goods

Which of the following is not an advantage of the corporate structure over proprietorship and partnership forms of business organization?

The landlord's cost of continuing to rent a house to Smith is

The sum of the explicit and implicit costs incurred in the production process is called

In the short run, a firm will eventually experience rising per-unit costs because of

A car leasing company that expands its size by buying its competitors may run the risk of increasing production costs due to

As a firm expands output, in the short run marginal costs will

Marginal cost is best defined as

Before entry into an industry, a profit-maximizing decision maker will compare the expected market price with the expected

When total revenue minus total economic cost is greater than zero, the firm is

As output is expanded, if MC is less than ATC,

Long-run diseconomies of scale exist over the range of output for which the long-run average cost curve is

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

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

Sunk costs

Which of the following is the best example of a fixed cost for a business?

For most firms, the major difference between accounting profit and economic profit is that

Use the figure to answer the following question(s). Figure 8-2 Using Figure 8-2, calculate the firm's total cost of producing 30 units of output.

Al's Donuts produces about 600 dozen doughnuts daily. If flour prices increase 20 percent

If a firm increases its output and finds that its average total cost decreases as a result, this implies that

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