Question 1

Assume both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the AVC curve, marginal cost must be:

Accepted Answer

A)  greater than the average variable cost. 
B)  ​less than the average variable cost. 
C)  ​equal to the average variable cost. 
D)  ​at its minimum. 
A)  greater than the average variable cost. 
B)  ​less than the average variable cost. 
C)  ​equal to the average variable cost. 
D)  ​at its minimum.

Question 2

Exhibit 7-9 Cost schedule for firm X
 
As shown in Exhibit 7-9, the marginal cost of producing the third unit is:

Accepted Answer

A)  $50. 
B)  $16. 
C)  $24. 
D)  $23. 
A)  $50. 
B)  $16. 
C)  $24. 
D)  $23.

Question 3

Exhibit 7-13 Cost curves
 
In Exhibit 7-13, AFC is shown by the graph labeled:

Accepted Answer

A)  I. 
B)  II. 
C)  III. 
D)  V. 
A)  I. 
B)  II. 
C)  III. 
D)  V.

Question 4

Exhibit 7-1 Production of pizza data
 
Exhibit 7-1 shows the change in the short-run production of pizzas as more workers are hired. The table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A possible reason for this diminishing marginal product is:

Accepted Answer

A)  decreases in labor productivity. 
B)  increases in plant size. 
C)  decreases in fixed cost. 
D)  increased division of labor as additional workers are hired. 
A)  decreases in labor productivity. 
B)  increases in plant size. 
C)  decreases in fixed cost. 
D)  increased division of labor as additional workers are hired.

Question 5

Exhibit 7-10 Short-run cost schedule for book publisher's hourly production
 
In Exhibit 7-10, the publisher's fixed cost is equal to:

Accepted Answer

A)  $0. 
B)  $100. 
C)  $200. 
D)  The fixed cost cannot be determined with the information provided. 
A)  $0. 
B)  $100. 
C)  $200. 
D)  The fixed cost cannot be determined with the information provided.

Question 6

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 7

Exhibit 7-14 Cost curves
 
In Exhibit 7-14, constant returns to scale only exist for output levels between:

Accepted Answer

A)  0 and 1,000. 
B)  1,000 and 2,000. 
C)  2,000 and 3,000. 
D)  3,000 and 4,000. 
A)  0 and 1,000. 
B)  1,000 and 2,000. 
C)  2,000 and 3,000. 
D)  3,000 and 4,000.

Question 8

A firm has $200 million in total revenue and explicit costs of $190 million. Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year. The firm's economic profit is:

Accepted Answer

A)  $400 million. 
B)  $100 million. 
C)  $80 million. 
D)  zero. 
A)  $400 million. 
B)  $100 million. 
C)  $80 million. 
D)  zero.

Question 9

Which of the following must be true if average total cost is rising?

Accepted Answer

A)  Average fixed cost must be rising. 
B)  Total fixed cost must be rising. 
C)  Average variable cost must be falling. 
D)  Marginal cost must be greater than average total cost. 
A)  Average fixed cost must be rising. 
B)  Total fixed cost must be rising. 
C)  Average variable cost must be falling. 
D)  Marginal cost must be greater than average total cost.

Question 10

When the cost curves have U-shapes, at the point where marginal cost equals average total cost:

Accepted Answer

A)  the fixed cost has been fully depreciated. 
B)  average fixed cost is rising. 
C)  average total cost is at its minimum. 
D)  average variable cost is falling. 
A)  the fixed cost has been fully depreciated. 
B)  average fixed cost is rising. 
C)  average total cost is at its minimum. 
D)  average variable cost is falling.

Question 11

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 12

Exhibit 7-10 Short-run cost schedule for book publisher's hourly production
 
In Exhibit 7-10, the marginal cost of increasing production from 2 to 3 cases of books is:

Accepted Answer

A)  higher than the marginal cost of increasing production from 1 to 2 cases of books, so the marginal cost curve must be rising in between 2 and 3 cases. 
B)  higher than the marginal cost of increasing production from 1 to 2 cases of books, so the average total cost must be rising in between 2 and 3 cases. 
C)  lower than the marginal cost of increasing production from 1 to 2 cases of books, so the marginal cost must be greater than average total cost between 2 and 3 cases. 
D)  lower than the marginal cost of increasing production from 1 to 2 cases of books, so the average total cost must be rising in between 2 and 3 cases. 
A)  higher than the marginal cost of increasing production from 1 to 2 cases of books, so the marginal cost curve must be rising in between 2 and 3 cases. 
B)  higher than the marginal cost of increasing production from 1 to 2 cases of books, so the average total cost must be rising in between 2 and 3 cases. 
C)  lower than the marginal cost of increasing production from 1 to 2 cases of books, so the marginal cost must be greater than average total cost between 2 and 3 cases. 
D)  lower than the marginal cost of increasing production from 1 to 2 cases of books, so the average total cost must be rising in between 2 and 3 cases.

Question 13

Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise?

Accepted Answer

A)  As more of the variable factor is used, the higher the price of that factor. 
B)  When diminishing marginal returns set in, it will take ever-larger quantities of the variable resources to produce an additional unit of output. 
C)  As the variable factor is used more intensely, its marginal product will rise, causing an increase in marginal costs. 
D)  As the size of the firm increases, the operational efficiency of the firm declines, causing an increase in marginal costs. 
A)  As more of the variable factor is used, the higher the price of that factor. 
B)  When diminishing marginal returns set in, it will take ever-larger quantities of the variable resources to produce an additional unit of output. 
C)  As the variable factor is used more intensely, its marginal product will rise, causing an increase in marginal costs. 
D)  As the size of the firm increases, the operational efficiency of the firm declines, causing an increase in marginal costs.

Question 14

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What is the sum of his explicit costs?

Accepted Answer

A)  $26,000. 
B)  $66,000. 
C)  $78,000. 
D)  $52,000. 
A)  $26,000. 
B)  $66,000. 
C)  $78,000. 
D)  $52,000.

Question 15

Which of the following best describes total fixed cost?

Accepted Answer

A)  Costs that do not vary as output varies. 
B)  Total cost divided by the quantity of output produced. 
C)  Total variable cost divided by the quantity of output produced. 
D)  Total fixed cost divided by the quantity of output produced. 
A)  Costs that do not vary as output varies. 
B)  Total cost divided by the quantity of output produced. 
C)  Total variable cost divided by the quantity of output produced. 
D)  Total fixed cost divided by the quantity of output produced.

Question 16

The mirror image of the marginal cost curve is the

Accepted Answer

A)  average fixed cost curve. 
B)  marginal product curve. 
C)  total variable cost curve. 
D)  average total cost curve. 
A)  average fixed cost curve. 
B)  marginal product curve. 
C)  total variable cost curve. 
D)  average total cost curve.

Question 17

If fixed cost is $200,000 and variable cost is $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 18

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

Accepted Answer

A)  constant. 
B)  falling. 
C)  rising. 
D)  subject to diminishing returns. 
A)  constant. 
B)  falling. 
C)  rising. 
D)  subject to diminishing returns.

Question 19

Which of the following is most likely to be a fixed cost for a business?

Accepted Answer

A)  expenditures on low-skill labor. 
B)  shipping charges for the delivery of products. 
C)  materials costs. 
D)  property taxes on the firm's buildings. 
A)  expenditures on low-skill labor. 
B)  shipping charges for the delivery of products. 
C)  materials costs. 
D)  property taxes on the firm's buildings.

Question 20

Exhibit 7-1 Production of pizza data
 
Exhibit 7-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the labor input begins to fall with the employment of the

Accepted Answer

A)  first worker. 
B)  second worker. 
C)  third worker. 
D)  fourth worker. 
A)  first worker. 
B)  second worker. 
C)  third worker. 
D)  fourth worker.

Exam 7: Production Costs

Assume both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the AVC curve, marginal cost must be:

Exhibit 7-9 Cost schedule for firm X As shown in Exhibit 7-9, the marginal cost of producing the third unit is:

Exhibit 7-13 Cost curves In Exhibit 7-13, AFC is shown by the graph labeled:

Exhibit 7-1 Production of pizza data Exhibit 7-1 shows the change in the short-run production of pizzas as more workers are hired. The table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A possible reason for this diminishing marginal product is:

Exhibit 7-10 Short-run cost schedule for book publisher's hourly production In Exhibit 7-10, the publisher's fixed cost is equal to:

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

Exhibit 7-14 Cost curves In Exhibit 7-14, constant returns to scale only exist for output levels between:

A firm has $200 million in total revenue and explicit costs of $190 million. Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year. The firm's economic profit is:

Which of the following must be true if average total cost is rising?

When the cost curves have U-shapes, at the point where marginal cost equals average total cost:

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

Exhibit 7-10 Short-run cost schedule for book publisher's hourly production In Exhibit 7-10, the marginal cost of increasing production from 2 to 3 cases of books is:

Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise?

Which of the following best describes total fixed cost?

The mirror image of the marginal cost curve is the

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

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

Which of the following is most likely to be a fixed cost for a business?

Exhibit 7-1 Production of pizza data Exhibit 7-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the labor input begins to fall with the employment of the

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

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