Question 1

Exhibit 6-6  Total cost curves   In Exhibit 6-6, the total cost of producing 6,000 units of output is:

Accepted Answer

A)  1,000. 
B)  3,000. 
C)  5,000. 
D)  6,000. 
E)  8,000. 
A)  1,000. 
B)  3,000. 
C)  5,000. 
D)  6,000. 
E)  8,000.

Question 2

Exhibit 6-12  Cost schedule for producing pizza   By filling in the blanks in Exhibit 6-12, the AFC of 4 pizzas is shown to be equal to:

Accepted Answer

A)  $10. 
B)  $9.50. 
C)  $19.50. 
D)  $40. 
E)  $78. 
A)  $10. 
B)  $9.50. 
C)  $19.50. 
D)  $40. 
E)  $78.

Question 3

Exhibit 6-1  Production of pizza data   Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the second employee equals:

Accepted Answer

A)  4. 
B)  10. 
C)  14. 
D)  6. 
E)  15. 
A)  4. 
B)  10. 
C)  14. 
D)  6. 
E)  15.

Question 4

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes equaled $90,400. Sam's implicit costs for this year are equal to:

Accepted Answer

A)  $84,400. 
B)  $39,000. 
C)  $55,000. 
D)  $45,600. 
E)  $40,000. 
A)  $84,400. 
B)  $39,000. 
C)  $55,000. 
D)  $45,600. 
E)  $40,000.

Question 5

Suppose the fixed cost of building a nuclear power plant is $1 billion. Suppose also that the only variable cost is the labor of Homer Simpson, and he earns $10 per hour. If the plant generates 1,000 kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the marginal cost of the next kilowatt?

Accepted Answer

A)  b and e. 
B)  The marginal cost is equal to $.01. 
C)  The marginal cost is equal to $1.01. 
D)  The marginal cost is rising. 
E)  The marginal cost is falling. 
A)  b and e. 
B)  The marginal cost is equal to $.01. 
C)  The marginal cost is equal to $1.01. 
D)  The marginal cost is rising. 
E)  The marginal cost is falling.

Question 6

Which of the following best describes a production function?

Accepted Answer

A)  The relationship between consumer preferences and market demand. 
B)  The relationship between the quantity of labor employed and total cost. 
C)  The relationship between the maximum amounts of output a firm can produce and various quantities of inputs. 
D)  The relationship between price and quantity supplied by sellers in a market. 
A)  The relationship between consumer preferences and market demand. 
B)  The relationship between the quantity of labor employed and total cost. 
C)  The relationship between the maximum amounts of output a firm can produce and various quantities of inputs. 
D)  The relationship between price and quantity supplied by sellers in a market.

Question 7

If the total variable cost of producing 5 units of output is $10 and the total variable cost of producing 6 units is $15, the marginal cost of producing a sixth unit is $5.

Accepted Answer

A) True 
 B)False

Question 8

In the long run, all costs are considered variable.

Accepted Answer

A) True 
 B)False

Question 9

Exhibit 6-11  Short-run cost curves schedule for pizzeria's hourly production   In Exhibit 6-11, what is the marginal cost of increasing production from 10 to 20 pizzas per hour?

Accepted Answer

A)  $2 per pizza. 
B)  $3 per pizza. 
C)  $4 per pizza. 
D)  $5 per pizza. 
A)  $2 per pizza. 
B)  $3 per pizza. 
C)  $4 per pizza. 
D)  $5 per pizza.

Question 10

Constant returns to scale cause the long-run average cost curve to be:

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  upward-sloping. 
D)  downward-sloping. 
A)  horizontal. 
B)  vertical. 
C)  upward-sloping. 
D)  downward-sloping.

Question 11

A bus is mostly filled with passengers and ready to travel from Los Angeles to San Francisco. At the last minute, a person comes running up to the bus and takes a seat. The change in the bus company's total cost as a result of transporting one more passenger on this trip is called:

Accepted Answer

A)  marginal cost. 
B)  average total cost. 
C)  variable cost. 
D)  fixed cost. 
E)  opportunity cost. 
A)  marginal cost. 
B)  average total cost. 
C)  variable cost. 
D)  fixed cost. 
E)  opportunity cost.

Question 12

Exhibit 6-12  Cost schedule for producing pizza   By filling in the blanks in Exhibit 6-12, the marginal cost of the third pizza is shown to be equal to:

Accepted Answer

A)  $10. 
B)  $11. 
C)  $12. 
D)  $13. 
E)  $14. 
A)  $10. 
B)  $11. 
C)  $12. 
D)  $13. 
E)  $14.

Question 13

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 14

In the long run, firms in many industries often experience a falling average total cost curve 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.

Question 15

Exhibit 6-13  Cost curves   In Exhibit 6-13, ATC is shown by the graph labeled:

Accepted Answer

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

Question 16

The marginal product curve rises when the marginal cost curve rises.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 6-10  Short-run cost schedule for book publisher's hourly production   In Exhibit 6-10, the average variable cost of producing 2 cases of books is:

Accepted Answer

A)  $50 per case. 
B)  $75 per case. 
C)  $100 per case. 
D)  $150 per case. 
A)  $50 per case. 
B)  $75 per case. 
C)  $100 per case. 
D)  $150 per case.

Question 18

Which of the following is true at the point where diminishing returns set in?

Accepted Answer

A)  Both marginal product and marginal cost are at a maximum. 
B)  Both marginal product and marginal cost are at a minimum. 
C)  Marginal product is at a maximum and marginal cost is at a minimum. 
D)  Marginal product is at a minimum and marginal cost is at a maximum. 
A)  Both marginal product and marginal cost are at a maximum. 
B)  Both marginal product and marginal cost are at a minimum. 
C)  Marginal product is at a maximum and marginal cost is at a minimum. 
D)  Marginal product is at a minimum and marginal cost is at a maximum.

Question 19

For a typical firm, the long-run average total cost curve:

Accepted Answer

A)  is tangent to the minimum point of each possible short-run average total cost curves. 
B)  is tangent to each possible short-run average total cost curve at one point. 
C)  intersects each possible short-run average total cost curve at two points. 
D)  passes through the minimum points of all possible short-run average total cost curves. 
A)  is tangent to the minimum point of each possible short-run average total cost curves. 
B)  is tangent to each possible short-run average total cost curve at one point. 
C)  intersects each possible short-run average total cost curve at two points. 
D)  passes through the minimum points of all possible short-run average total cost curves.

Question 20

In the long run, total fixed cost will:

Accepted Answer

A)  remain constant. 
B)  increase. 
C)  decrease. 
D)  not exist by definition. 
A)  remain constant. 
B)  increase. 
C)  decrease. 
D)  not exist by definition.

Exam 6: Production Costs

Exhibit 6-6 Total cost curves In Exhibit 6-6, the total cost of producing 6,000 units of output is:

Exhibit 6-12 Cost schedule for producing pizza By filling in the blanks in Exhibit 6-12, the AFC of 4 pizzas is shown to be equal to:

Exhibit 6-1 Production of pizza data Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the second employee equals:

Which of the following best describes a production function?

If the total variable cost of producing 5 units of output is $10 and the total variable cost of producing 6 units is $15, the marginal cost of producing a sixth unit is $5.

In the long run, all costs are considered variable.

Exhibit 6-11 Short-run cost curves schedule for pizzeria's hourly production In Exhibit 6-11, what is the marginal cost of increasing production from 10 to 20 pizzas per hour?

Constant returns to scale cause the long-run average cost curve to be:

A bus is mostly filled with passengers and ready to travel from Los Angeles to San Francisco. At the last minute, a person comes running up to the bus and takes a seat. The change in the bus company's total cost as a result of transporting one more passenger on this trip is called:

Exhibit 6-12 Cost schedule for producing pizza By filling in the blanks in Exhibit 6-12, the marginal cost of the third pizza is shown to be equal to:

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

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

Exhibit 6-13 Cost curves In Exhibit 6-13, ATC is shown by the graph labeled:

The marginal product curve rises when the marginal cost curve rises.

Exhibit 6-10 Short-run cost schedule for book publisher's hourly production In Exhibit 6-10, the average variable cost of producing 2 cases of books is:

Which of the following is true at the point where diminishing returns set in?

For a typical firm, the long-run average total cost curve:

In the long run, total fixed cost will:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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