Question 1

Exhibit 6-1  Production of pizza data   Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The total output of pizzas after hiring 4 workers is:

Accepted Answer

A)  4. 
B)  15. 
C)  18. 
D)  3. 
E)  1. 
A)  4. 
B)  15. 
C)  18. 
D)  3. 
E)  1.

Question 2

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 3

Exhibit 6-2  Cost schedule for pizza production   Exhibit 6-2 shows the labor, energy, and materials cost of making various quantities of pizzas. The table shows that the labor cost of making pizzas will:

Accepted Answer

A)  increase at a decreasing rate. 
B)  decrease at a decreasing rate. 
C)  decrease at an increasing rate. 
D)  increase at an increasing rate. 
E)  increase at a constant rate. 
A)  increase at a decreasing rate. 
B)  decrease at a decreasing rate. 
C)  decrease at an increasing rate. 
D)  increase at an increasing rate. 
E)  increase at a constant rate.

Question 4

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 5

The law of diminishing returns causes a firm's short-run marginal cost curve to be s-shaped.

Accepted Answer

A) True 
 B)False

Question 6

American Airlines makes numerous nonstop flights from Chicago's O'Hare Airport to the airport at Dallas-Fort Worth. The distance between those two cities is 1,000 miles. The only variable cost, fuel, costs $.06 for each passenger-mile it flies. Bob, on his way to an emergency business meeting, buys a ticket in coach class for $1,300 at the very last minute. The marginal cost of flying Bob from Chicago to Dallas-Fort Worth is:

Accepted Answer

A)  b and e. 
B)  higher than the average cost of previous passengers. 
C)  $600. 
D)  $160. 
E)  $60. 
A)  b and e. 
B)  higher than the average cost of previous passengers. 
C)  $600. 
D)  $160. 
E)  $60.

Question 7

The primary cause of diseconomies of scale is scarcity of machinery and capital.

Accepted Answer

A) True 
 B)False

Question 8

The opportunity costs associated with the use of resources owned by a firm are:

Accepted Answer

A)  externalities. 
B)  implicit costs. 
C)  explicit costs. 
D)  sunk costs. 
A)  externalities. 
B)  implicit costs. 
C)  explicit costs. 
D)  sunk costs.

Question 9

The total cost curve is the sum of the:

Accepted Answer

A)  total fixed and total variable cost curves. 
B)  total fixed and marginal cost curves. 
C)  marginal cost and total variable cost curves. 
D)  none of the above. 
A)  total fixed and total variable cost curves. 
B)  total fixed and marginal cost curves. 
C)  marginal cost and total variable cost curves. 
D)  none of the above.

Question 10

Exhibit 6-8  Costs schedules for producing pizza   By filling in the blanks in Exhibit 6-8, the total cost of producing 3 pizzas is shown to be equal to:

Accepted Answer

A)  $100. 
B)  $105. 
C)  $113. 
D)  $123. 
E)  $23. 
A)  $100. 
B)  $105. 
C)  $113. 
D)  $123. 
E)  $23.

Question 11

Economic profit equals accounting profit minus:

Accepted Answer

A)  explicit costs. 
B)  implicit costs. 
C)  fixed costs. 
D)  variable costs. 
A)  explicit costs. 
B)  implicit costs. 
C)  fixed costs. 
D)  variable costs.

Question 12

Constant returns to scale exist over the range of output for which the long-run average cost is:

Accepted Answer

A)  neither rising or falling. 
B)  falling. 
C)  rising. 
D)  none of the above. 
A)  neither rising or falling. 
B)  falling. 
C)  rising. 
D)  none of the above.

Question 13

Paul's Plumbing is a small business that employs 12 people. Which of the following is the best example of an implicit cost incurred by this firm?

Accepted Answer

A)  The tax payments on property owned by the firm. 
B)  The wages paid to the 12 employees. 
C)  The half of the payroll taxes on the wages of the 12 employees paid by the employers, but not the half paid by the employees. 
D)  The accounting services provided free of charge to the firm by Paul's wife, who is an accountant. 
A)  The tax payments on property owned by the firm. 
B)  The wages paid to the 12 employees. 
C)  The half of the payroll taxes on the wages of the 12 employees paid by the employers, but not the half paid by the employees. 
D)  The accounting services provided free of charge to the firm by Paul's wife, who is an accountant.

Question 14

Exhibit 6-15  Long-run average cost   In Exhibit 6-15, diseconomies of scale are shown in the range of:

Accepted Answer

A)  0 to 500 units per week. 
B)  500 to 1,000 units per week. 
C)  1,000 to 2,000 units per week. 
D)  zero per week. 
A)  0 to 500 units per week. 
B)  500 to 1,000 units per week. 
C)  1,000 to 2,000 units per week. 
D)  zero per week.

Question 15

Distinguish the short run form the long run. Generally, what causes costs of production to vary with output in the short run? What generally causes costs of production to vary in the long run?

Accepted Answer

The short run is any amount of time in w

Question 16

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 17

Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips. Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips. Which of the following represents an implicit cost of operating the bar?

Accepted Answer

A)  Diane's wage. 
B)  Sam's time. 
C)  Diane's tips. 
D)  Sam's tips. 
E)  Both Diane's and Sam's tips. 
A)  Diane's wage. 
B)  Sam's time. 
C)  Diane's tips. 
D)  Sam's tips. 
E)  Both Diane's and Sam's tips.

Question 18

Exhibit 6-16  Long-run average cost curves   Which firm in Exhibit 6-16 displays a long-run average cost curve with economies of scale throughout the range of output shown?

Accepted Answer

A)  Firm A. 
B)  Firm B. 
C)  Firm C. 
D)  Firms A and B. 
A)  Firm A. 
B)  Firm B. 
C)  Firm C. 
D)  Firms A and B.

Question 19

Long-run economies 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)  does not exist. 
A)  constant. 
B)  falling. 
C)  rising. 
D)  does not exist.

Question 20

Marginal cost is defined as the increase in total cost resulting from an increase in:

Accepted Answer

A)  one unit of output. 
B)  output of 100 units. 
C)  a firm's plant size. 
D)  one unit of labor. 
A)  one unit of output. 
B)  output of 100 units. 
C)  a firm's plant size. 
D)  one unit of labor.

Exam 6: Production Costs

Exhibit 6-1 Production of pizza data Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The total output of pizzas after hiring 4 workers is:

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

Exhibit 6-2 Cost schedule for pizza production Exhibit 6-2 shows the labor, energy, and materials cost of making various quantities of pizzas. The table shows that the labor cost of making pizzas will:

Marginal cost is best defined as:

The law of diminishing returns causes a firm's short-run marginal cost curve to be s-shaped.

The primary cause of diseconomies of scale is scarcity of machinery and capital.

The opportunity costs associated with the use of resources owned by a firm are:

The total cost curve is the sum of the:

Exhibit 6-8 Costs schedules for producing pizza By filling in the blanks in Exhibit 6-8, the total cost of producing 3 pizzas is shown to be equal to:

Economic profit equals accounting profit minus:

Constant returns to scale exist over the range of output for which the long-run average cost is:

Paul's Plumbing is a small business that employs 12 people. Which of the following is the best example of an implicit cost incurred by this firm?

Exhibit 6-15 Long-run average cost In Exhibit 6-15, diseconomies of scale are shown in the range of:

Distinguish the short run form the long run. Generally, what causes costs of production to vary with output in the short run? What generally causes costs of production to vary in the long run?

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:

Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips. Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips. Which of the following represents an implicit cost of operating the bar?

Exhibit 6-16 Long-run average cost curves Which firm in Exhibit 6-16 displays a long-run average cost curve with economies of scale throughout the range of output shown?

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

Marginal cost is defined as the increase in total cost resulting from an increase in:

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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