Question 1

Bill is an accountant for a small machine shop. His boss has asked him to calculate the shop's total fixed cost. Which method will get Bill the correct answer?

Accepted Answer

A)  c and d. 
B)  Calculating the product of average total cost and quantity 
C)  Determining what the shop would pay for if they produced zero output 
D)  Subtracting the total variable costs from the total costs 
E)  Subtracting total variable costs from total revenue 
A)  c and d. 
B)  Calculating the product of average total cost and quantity 
C)  Determining what the shop would pay for if they produced zero output 
D)  Subtracting the total variable costs from the total costs 
E)  Subtracting total variable costs from total revenue

Question 2

Suppose a firm has an output of 10,000 cans and a total fixed cost of $2,000. At an output of 5,000 the difference between the total cost and the total variable cost is:

Accepted Answer

A)  b and c. 
B)  $0.40. 
C)  the average fixed cost. 
D)  $2,000. 
E)  $0.20. 
A)  b and c. 
B)  $0.40. 
C)  the average fixed cost. 
D)  $2,000. 
E)  $0.20.

Question 3

Cash payments to a steel mill for steel used in production would be an example of:

Accepted Answer

A)  sunk costs. 
B)  fixed costs. 
C)  explicit costs. 
D)  implicit costs. 
E)  entrepreneurial costs. 
A)  sunk costs. 
B)  fixed costs. 
C)  explicit costs. 
D)  implicit costs. 
E)  entrepreneurial costs.

Question 4

Exhibit 6-11  Short-run cost curves schedule for pizzeria's hourly production   In Exhibit 6-11, the pizzeria's fixed cost is equal to:

Accepted Answer

A)  $20. 
B)  $30. 
C)  $50. 
D)  $70. 
A)  $20. 
B)  $30. 
C)  $50. 
D)  $70.

Question 5

Exhibit 6-14  Cost curves   In Exhibit 6-14, a firm finds that it is experiencing numerous managerial and information problems. The position of its short- and long-run average total cost curves suggest that it is operating at a production level:

Accepted Answer

A)  between 0 and 1,000. 
B)  between 1,000 and 2,000. 
C)  between 2,000 and 3,000. 
D)  between 3,000 and 4,000. 
E)  where it should shut down immediately. 
A)  between 0 and 1,000. 
B)  between 1,000 and 2,000. 
C)  between 2,000 and 3,000. 
D)  between 3,000 and 4,000. 
E)  where it should shut down immediately.

Question 6

Economists say that a firm has a normal profit when:

Accepted Answer

A)  it earns a return of at least 10 percent. 
B)  its accounting profit is positive. 
C)  it can pay all its variable costs. 
D)  its economic profit is zero. 
A)  it earns a return of at least 10 percent. 
B)  its accounting profit is positive. 
C)  it can pay all its variable costs. 
D)  its economic profit is zero.

Question 7

The situation in which the marginal product of labor is greater than zero and declining as more labor is hired is called the law of:

Accepted Answer

A)  negative response. 
B)  inverse return to labor. 
C)  diminishing returns. 
D)  demand. 
A)  negative response. 
B)  inverse return to labor. 
C)  diminishing returns. 
D)  demand.

Question 8

Exhibit 6-8  Costs schedules for producing pizza   By filling in the blanks in Exhibit 6-8, the total cost of producing zero pizzas is shown to be equal to:

Accepted Answer

A)  zero. 
B)  $100. 
C)  $5. 
D)  $105. 
E)  $95. 
A)  zero. 
B)  $100. 
C)  $5. 
D)  $105. 
E)  $95.

Question 9

A firm can produce 450 gallons of milk per day with 4 workers and 500 gallons per day with 5 workers. The marginal product of the fifth worker expressed in gallons per worker per day, is:

Accepted Answer

A)  35. 
B)  50. 
C)  70. 
D)  350. 
A)  35. 
B)  50. 
C)  70. 
D)  350.

Question 10

Exhibit 6-1  Production of pizza data   Exhibit 6-1 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)  decreased wages. 
B)  increases in plant size. 
C)  decreases in fixed cost. 
D)  increased division of labor as additional workers are hired. 
E)  decreases in labor productivity. 
A)  decreased wages. 
B)  increases in plant size. 
C)  decreases in fixed cost. 
D)  increased division of labor as additional workers are hired. 
E)  decreases in labor productivity.

Question 11

Which of the following is an implication of the law of diminishing returns?

Accepted Answer

A)  Total output will decline as more workers are hired. 
B)  In the long run, average total cost will eventually decline as output is expanded. 
C)  In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost. 
D)  A doubling of all inputs will lead to more than a doubling of output. 
A)  Total output will decline as more workers are hired. 
B)  In the long run, average total cost will eventually decline as output is expanded. 
C)  In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost. 
D)  A doubling of all inputs will lead to more than a doubling of output.

Question 12

Exhibit 6-11  Short-run cost curves schedule for pizzeria's hourly production   In Exhibit 6-11, the average total cost or producing 40 pizzas per hour is equal to:

Accepted Answer

A)  $5 per pizza. 
B)  $5.75 per pizza. 
C)  $6.25 per pizza. 
D)  $10 per pizza. 
A)  $5 per pizza. 
B)  $5.75 per pizza. 
C)  $6.25 per pizza. 
D)  $10 per pizza.

Question 13

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

Accepted Answer

A)  $400 million. 
B)  $100 million. 
C)  $80 million. 
D)  $10 million. 
E)  zero. 
A)  $400 million. 
B)  $100 million. 
C)  $80 million. 
D)  $10 million. 
E)  zero.

Question 14

Exhibit 6-9  Cost schedule for firm X   As shown in Exhibit 6-9, the total cost of producing 4 units is:

Accepted Answer

A)  zero. 
B)  $227. 
C)  $250. 
D)  $100. 
A)  zero. 
B)  $227. 
C)  $250. 
D)  $100.

Question 15

Suppose a publisher faces the following costs of producing 10,000 newspapers each month: $5,500 cost of labor; $2,200 monthly mortgage payment; $250 cost of electricity to run the printing presses; $800 for ink and paper; and $200 in city property taxes (based on the value of the building and land). Its total variable costs are:

Accepted Answer

A)  $8,950. 
B)  $8,750. 
C)  $6,550. 
D)  $6,300. 
E)  $5,500. 
A)  $8,950. 
B)  $8,750. 
C)  $6,550. 
D)  $6,300. 
E)  $5,500.

Question 16

The amount of money that could have been made by renting a piece of land to be used for building an office building instead of using the land for employee parking is a(n):

Accepted Answer

A)  implicit cost. 
B)  accounting cost. 
C)  explicit cost. 
D)  pure economic cost. 
A)  implicit cost. 
B)  accounting cost. 
C)  explicit cost. 
D)  pure economic cost.

Question 17

At the point where marginal cost equals average variable cost,

Accepted Answer

A)  b and c. 
B)  marginal cost is rising. 
C)  average total cost is at its minimum. 
D)  average variable cost is falling. 
E)  there is no total cost. 
A)  b and c. 
B)  marginal cost is rising. 
C)  average total cost is at its minimum. 
D)  average variable cost is falling. 
E)  there is no total cost.

Question 18

Which of the following is an implicit cost of going to college?

Accepted Answer

A)  Tuition. 
B)  Books. 
C)  Lost income. 
D)  Future income. 
E)  Room and board. 
A)  Tuition. 
B)  Books. 
C)  Lost income. 
D)  Future income. 
E)  Room and board.

Question 19

Variable inputs are defined as any resource that:

Accepted Answer

A)  varies with the size of the firm's plant. 
B)  cannot be changed as output changes. 
C)  can be changed as output changes. 
D)  can be increased or decreased hourly. 
A)  varies with the size of the firm's plant. 
B)  cannot be changed as output changes. 
C)  can be changed as output changes. 
D)  can be increased or decreased hourly.

Question 20

Normal profit is a term for:

Accepted Answer

A)  explicit profit. 
B)  the minimum profit to keep a firm in operation. 
C)  the accounting profit forgone. 
D)  pure economic profit. 
A)  explicit profit. 
B)  the minimum profit to keep a firm in operation. 
C)  the accounting profit forgone. 
D)  pure economic profit.

Exam 6: Production Costs

Bill is an accountant for a small machine shop. His boss has asked him to calculate the shop's total fixed cost. Which method will get Bill the correct answer?

Suppose a firm has an output of 10,000 cans and a total fixed cost of $2,000. At an output of 5,000 the difference between the total cost and the total variable cost is:

Cash payments to a steel mill for steel used in production would be an example of:

Exhibit 6-11 Short-run cost curves schedule for pizzeria's hourly production In Exhibit 6-11, the pizzeria's fixed cost is equal to:

Exhibit 6-14 Cost curves In Exhibit 6-14, a firm finds that it is experiencing numerous managerial and information problems. The position of its short- and long-run average total cost curves suggest that it is operating at a production level:

Economists say that a firm has a normal profit when:

The situation in which the marginal product of labor is greater than zero and declining as more labor is hired is called the law of:

Exhibit 6-8 Costs schedules for producing pizza By filling in the blanks in Exhibit 6-8, the total cost of producing zero pizzas is shown to be equal to:

A firm can produce 450 gallons of milk per day with 4 workers and 500 gallons per day with 5 workers. The marginal product of the fifth worker expressed in gallons per worker per day, is:

Exhibit 6-1 Production of pizza data Exhibit 6-1 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:

Which of the following is an implication of the law of diminishing returns?

Exhibit 6-11 Short-run cost curves schedule for pizzeria's hourly production In Exhibit 6-11, the average total cost or producing 40 pizzas per hour is equal to:

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

Exhibit 6-9 Cost schedule for firm X As shown in Exhibit 6-9, the total cost of producing 4 units is:

The amount of money that could have been made by renting a piece of land to be used for building an office building instead of using the land for employee parking is a(n):

At the point where marginal cost equals average variable cost,

Which of the following is an implicit cost of going to college?

Variable inputs are defined as any resource that:

Normal profit is a term for:

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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