Question 1

Figure 8-8
  
-In Figure 8-8,which output minimizes per-unit cost?

Accepted Answer

A) 4 
B) 6 
C) 7 
D) 8 
A) 4 
B) 6 
C) 7 
D) 8

Question 2

Anne Teek works full time as the manager of her used furniture store in which she has invested $40,000.Last year,her total revenues were $90,000 and her costs were $60,000 for merchandise,gas,electricity,and other explicit-cost items.Ms.Teek pays herself a "competitive" salary of $30,000 per year.An economist would consider her profits for the year to be

Accepted Answer

A) -$40,000. 
B) $0. 
C) $0 minus the opportunity cost of the $40,000 of capital invested in the store. 
D) $30,000. 
A) -$40,000. 
B) $0. 
C) $0 minus the opportunity cost of the $40,000 of capital invested in the store. 
D) $30,000.

Question 3

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 4

Figure 8-13
  
-Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing

Accepted Answer

A) economies of scale. 
B) increasing average cost. 
C) economies of cost. 
D) a decrease in average plant size. 
E) diseconomies of scale. 
A) economies of scale. 
B) increasing average cost. 
C) economies of cost. 
D) a decrease in average plant size. 
E) diseconomies of scale.

Question 5

Figure 8-11
  
-The average variable cost (AVC)and average total cost (ATC)for a firm are indicated in Figure 8-11.The firm's total cost of producing 20 units is

Accepted Answer

A) $6. 
B) $84. 
C) $120. 
D) $150. 
A) $6. 
B) $84. 
C) $120. 
D) $150.

Question 6

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 7

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 8

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 9

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 10

Which of the following would cause a firm's cost curves to shift upward?

Accepted Answer

A) a reduction in resource prices 
B) a decrease in taxes 
C) an improvement in technology 
D) an increase in government regulations 
A) a reduction in resource prices 
B) a decrease in taxes 
C) an improvement in technology 
D) an increase in government regulations

Question 11

In the short run,the marginal cost curve crosses the average total cost curve at

Accepted Answer

A) a point just below the average fixed cost curve. 
B) the minimum point on the average total cost curve. 
C) the maximum point of the average variable cost curve. 
D) all of the above points. 
A) a point just below the average fixed cost curve. 
B) the minimum point on the average total cost curve. 
C) the maximum point of the average variable cost curve. 
D) all of the above points.

Question 12

Figure 8-14
The following question(s)refer(s)to the below cost curves for one very small firm in a large market.
  
-Refer to Figure 8-14.This firm minimizes its per-unit costs of production at an output level of

Accepted Answer

A) Q = 6. 
B) Q = 10. 
C) Q = 15. 
D) none of the above. 
A) Q = 6. 
B) Q = 10. 
C) Q = 15. 
D) none of the above.

Question 13

Use the figure to answer the following question(s).
Figure 8-1
  
-At what output in Figure 8-1 would the firm's per-unit cost of production be minimized?

Accepted Answer

A) 3 
B) 4 
C) 5 
D) 6 
A) 3 
B) 4 
C) 5 
D) 6

Question 14

Bill lives in Montana and likes to grow zucchini.He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer.What economic concept best explains this observation?

Accepted Answer

A) the law of diminishing marginal utility 
B) the law of diminishing returns 
C) return equalization principle 
D) the principal-agent problem 
A) the law of diminishing marginal utility 
B) the law of diminishing returns 
C) return equalization principle 
D) the principal-agent problem

Question 15

If a firm doubles all of its inputs and its output triples,it is said to be experiencing

Accepted Answer

A) diminishing marginal returns. 
B) increasing marginal returns. 
C) diseconomies of scale. 
D) economies of scale. 
E) constant average costs. 
A) diminishing marginal returns. 
B) increasing marginal returns. 
C) diseconomies of scale. 
D) economies of scale. 
E) constant average costs.

Question 16

The law of diminishing returns

Accepted Answer

A) explains why marginal cost eventually increases as output expands. 
B) implies that average fixed cost will remain unchanged as output expands. 
C) is true for physical production activities but not for activities such as studying. 
D) applies to a capitalist economy but would be irrelevant if the means of production were owned by the state. 
A) explains why marginal cost eventually increases as output expands. 
B) implies that average fixed cost will remain unchanged as output expands. 
C) is true for physical production activities but not for activities such as studying. 
D) applies to a capitalist economy but would be irrelevant if the means of production were owned by the state.

Question 17

Figure 8-2
  
-Using Figure 8-2,calculate the firm's total cost of producing 20 units of output.

Accepted Answer

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

Question 18

Suppose you value watching a movie at $5.You rent it from your local movie rental store for $3.50 for one night.You do not get a chance to watch it,so you decide to keep it an extra day and pay a late fee of $2.Your decision is

Accepted Answer

A) incorrect;you paid $5.50 to watch a movie you valued at only $5.You should have taken the movie back. 
B) incorrect;you should have returned the movie and rented it later. 
C) correct;the $3.50 paid for the first night is a sunk cost and is not relevant in your decision to keep it an additional night. 
D) correct;you value watching the movie at $5 per night,so keeping it an extra day increases your value of the movie to $10. 
A) incorrect;you paid $5.50 to watch a movie you valued at only $5.You should have taken the movie back. 
B) incorrect;you should have returned the movie and rented it later. 
C) correct;the $3.50 paid for the first night is a sunk cost and is not relevant in your decision to keep it an additional night. 
D) correct;you value watching the movie at $5 per night,so keeping it an extra day increases your value of the movie to $10.

Question 19

If a firm has a U-shaped long-run average cost curve,

Accepted Answer

A) its fixed cost rises as output rises. 
B) it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production. 
C) it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production. 
D) the firm can maximize its output by operating at the point of minimum long-run average cost. 
A) its fixed cost rises as output rises. 
B) it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production. 
C) it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production. 
D) the firm can maximize its output by operating at the point of minimum long-run average cost.

Question 20

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,its price will rise. 
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,its price will rise. 
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.

Exam 21: Acosts and the Supply of Goods

Figure 8-8 -In Figure 8-8,which output minimizes per-unit cost?

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

Figure 8-13 -Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing

Figure 8-11 -The average variable cost (AVC)and average total cost (ATC)for a firm are indicated in Figure 8-11.The firm's total cost of producing 20 units is

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

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

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

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

Which of the following would cause a firm's cost curves to shift upward?

In the short run,the marginal cost curve crosses the average total cost curve at

Figure 8-14 The following question(s)refer(s)to the below cost curves for one very small firm in a large market. -Refer to Figure 8-14.This firm minimizes its per-unit costs of production at an output level of

Use the figure to answer the following question(s). Figure 8-1 -At what output in Figure 8-1 would the firm's per-unit cost of production be minimized?

Bill lives in Montana and likes to grow zucchini.He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer.What economic concept best explains this observation?

If a firm doubles all of its inputs and its output triples,it is said to be experiencing

The law of diminishing returns

Figure 8-2 -Using Figure 8-2,calculate the firm's total cost of producing 20 units of output.

Suppose you value watching a movie at $5.You rent it from your local movie rental store for $3.50 for one night.You do not get a chance to watch it,so you decide to keep it an extra day and pay a late fee of $2.Your decision is

If a firm has a U-shaped long-run average cost curve,

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

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-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

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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