Question 1

Figure 8-7
  
-Which of the following is true for Figure 8-7?

Accepted Answer

A) Firms in this industry begin to experience diminishing returns to their variable factors at output Q₁. 
B) Between Q₁ and Q₂,firms in this industry experience economies of scale. 
C) Firms producing output rates less than Q₁ or more than Q₂ will find it difficult to survive. 
D) The largest firms in this industry have the lowest per-unit cost. 
A) Firms in this industry begin to experience diminishing returns to their variable factors at output Q₁. 
B) Between Q₁ and Q₂,firms in this industry experience economies of scale. 
C) Firms producing output rates less than Q₁ or more than Q₂ will find it difficult to survive. 
D) The largest firms in this industry have the lowest per-unit cost.

Question 2

A disadvantage of team production compared to contracting out is that

Accepted Answer

A) transaction costs are often higher with team production. 
B) the level of specialized knowledge required by team production is greater than with contracting out. 
C) the problem of shirking must be more carefully addressed with team production. 
D) team production increases the cost of production in most situations. 
A) transaction costs are often higher with team production. 
B) the level of specialized knowledge required by team production is greater than with contracting out. 
C) the problem of shirking must be more carefully addressed with team production. 
D) team production increases the cost of production in most situations.

Question 3

What is the difference between accounting profit and economic profit?

Accepted Answer

A) They are the same thing. 
B) They are only different if the accountant makes a mistake. 
C) Accounting profit is usually smaller than economic profits. 
D) Accounting profit makes no allowance for several implicit costs,including equity capital,while economic profit takes these costs into account. 
A) They are the same thing. 
B) They are only different if the accountant makes a mistake. 
C) Accounting profit is usually smaller than economic profits. 
D) Accounting profit makes no allowance for several implicit costs,including equity capital,while economic profit takes these costs into account.

Question 4

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 5

Which of the following items is most likely to be an implicit cost of production?

Accepted Answer

A) the "competitive rate" salary the owner of the business pays herself for services provided 
B) property taxes on a building owned by the firm 
C) rental payments for a building utilized by the company and rented from another party 
D) the interest income foregone on the equity capital invested by owners 
A) the "competitive rate" salary the owner of the business pays herself for services provided 
B) property taxes on a building owned by the firm 
C) rental payments for a building utilized by the company and rented from another party 
D) the interest income foregone on the equity capital invested by owners

Question 6

Ron works for Betty at Betty's Pizza Palace.Betty has many work rules,and Ron believes if there were fewer rules and more flexibility,he could do a better job.Betty probably has the rules because

Accepted Answer

A) Ron,like her other employees,is a residual claimant. 
B) due to the principal-agent problem,some employees are likely to shirk when the owner is absent. 
C) she is maximizing sales rather than profits. 
D) with regard to their jobs,employees seldom know what is best. 
A) Ron,like her other employees,is a residual claimant. 
B) due to the principal-agent problem,some employees are likely to shirk when the owner is absent. 
C) she is maximizing sales rather than profits. 
D) with regard to their jobs,employees seldom know what is best.

Question 7

When making choices,suppliers should not allow sunk costs to directly affect their current decisions because

Accepted Answer

A) sunk costs do not reflect foregone opportunities accompanying current choices. 
B) sunk costs will not influence the accounting costs of a firm. 
C) sunk costs influence the demand for products,not the supply. 
D) past choices fail to provide any information relevant to current decision making. 
A) sunk costs do not reflect foregone opportunities accompanying current choices. 
B) sunk costs will not influence the accounting costs of a firm. 
C) sunk costs influence the demand for products,not the supply. 
D) past choices fail to provide any information relevant to current decision making.

Question 8

When a firm increases its plant size in the long run and its per-unit costs fall,this is called

Accepted Answer

A) diminishing returns and is shown by the downward-sloping portion of the MP curve (or the upward-sloping portion of the MC curve). 
B) constant returns to scale and is shown by the flat portion of the LRATC curve. 
C) diseconomies of scale and is shown by the upward-sloping portion of the LRATC curve. 
D) economies of scale and is shown by the downward-sloping portion of the LRATC curve. 
A) diminishing returns and is shown by the downward-sloping portion of the MP curve (or the upward-sloping portion of the MC curve). 
B) constant returns to scale and is shown by the flat portion of the LRATC curve. 
C) diseconomies of scale and is shown by the upward-sloping portion of the LRATC curve. 
D) economies of scale and is shown by the downward-sloping portion of the LRATC curve.

Question 9

In the short run,which are most important in determining changes in output?

Accepted Answer

A) marginal costs and marginal revenue. 
B) total costs and total revenue. 
C) average costs and total revenue. 
D) fixed costs. 
A) marginal costs and marginal revenue. 
B) total costs and total revenue. 
C) average costs and total revenue. 
D) fixed costs.

Question 10

Suppose a professor gives up her teaching job to devote her time to writing textbooks.If salaries of professors rise,

Accepted Answer

A) her accounting profit will rise. 
B) her accounting profit will fall. 
C) her explicit costs will rise. 
D) her economic profit from textbooks will fall. 
E) her economic profit from textbooks will rise. 
A) her accounting profit will rise. 
B) her accounting profit will fall. 
C) her explicit costs will rise. 
D) her economic profit from textbooks will fall. 
E) her economic profit from textbooks will rise.

Question 11

Sally leaves her $34,000 secretarial position and invests her savings of $15,000 (on which she was earning 6 percent interest)to start her own agency.After expenses,her net income was $38,900.Her economic profit was

Accepted Answer

A) $4,900. 
B) $4,000. 
C) $38,900. 
D) zero. 
E) -$10,100 
A) $4,900. 
B) $4,000. 
C) $38,900. 
D) zero. 
E) -$10,100

Question 12

Average fixed costs

Accepted Answer

A) will remain unchanged as output expands. 
B) are defined as the change in total costs divided by the change in output. 
C) will always increase as output increases. 
D) will always decrease as output expands. 
A) will remain unchanged as output expands. 
B) are defined as the change in total costs divided by the change in output. 
C) will always increase as output increases. 
D) will always decrease as output expands.

Question 13

A downward-sloping portion of a long-run average total cost curve is the result of

Accepted Answer

A) economies of scale. 
B) diseconomies of scale. 
C) diminishing returns. 
D) the existence of fixed resources. 
A) economies of scale. 
B) diseconomies of scale. 
C) diminishing returns. 
D) the existence of fixed resources.

Question 14

The firm's average total costs will be a minimum at the output level where the

Accepted Answer

A) firm just begins to confront diminishing returns to the variable factors. 
B) marginal costs are a minimum. 
C) firm's average fixed costs are at their minimum. 
D) marginal cost curve crosses the firm's average total cost curve. 
A) firm just begins to confront diminishing returns to the variable factors. 
B) marginal costs are a minimum. 
C) firm's average fixed costs are at their minimum. 
D) marginal cost curve crosses the firm's average total cost curve.

Question 15

During the short-run period of the production process,a firm will be

Accepted Answer

A) unable to vary any of its factors of production. 
B) able to vary only some of its factors of production. 
C) able to vary all of its factors of production. 
D) able to vary the size of its plant. 
A) unable to vary any of its factors of production. 
B) able to vary only some of its factors of production. 
C) able to vary all of its factors of production. 
D) able to vary the size of its plant.

Question 16

The rate of return that owners of capital must receive in order to induce them to continue supplying the capital is often referred to as

Accepted Answer

A) accounting profit. 
B) the normal or market rate of return. 
C) economic profit. 
D) the accounting rate of return. 
A) accounting profit. 
B) the normal or market rate of return. 
C) economic profit. 
D) the accounting rate of return.

Question 17

James opened a baseball manufacturing operation,and initially the more balls he made,the lower the per-unit cost.Now,as output expands,his per-unit costs are rising.He concludes that diseconomies of scale have set in.Is he correct? Why?

Accepted Answer

Since diseconomies of scale apply to the

Question 18

Figure 8-10
  
-Using Figure 8-10,calculate the firm's approximate average total cost when it produces 12 units.

Accepted Answer

A) $5 
B) $10 
C) $15 
D) $20 
A) $5 
B) $10 
C) $15 
D) $20

Question 19

Kim used to work at "The Big One" accounting firm,and she earned $50,000 a year.She saved her money and has now invested $100,000 in her own firm.Profit is $20,000 a year,which Kim receives as her only compensation.She concludes that this is great because a 20 percent return is much better than the 8 percent she could get in another investment (the opportunity cost of the funds).What is wrong with this line of thinking?

Accepted Answer

While Kim is correct in understanding th

Question 20

Which of the following would shift a firm's short-run cost curves downward?

Accepted Answer

A) an advance in technology 
B) an increase in employees' wages 
C) an increase in the demand for the firm's product 
D) an increase in excise taxes levied on the firm's product 
A) an advance in technology 
B) an increase in employees' wages 
C) an increase in the demand for the firm's product 
D) an increase in excise taxes levied on the firm's product

Exam 21: Acosts and the Supply of Goods

Figure 8-7 -Which of the following is true for Figure 8-7?

A disadvantage of team production compared to contracting out is that

What is the difference between accounting profit and economic profit?

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

Which of the following items is most likely to be an implicit cost of production?

Ron works for Betty at Betty's Pizza Palace.Betty has many work rules,and Ron believes if there were fewer rules and more flexibility,he could do a better job.Betty probably has the rules because

When making choices,suppliers should not allow sunk costs to directly affect their current decisions because

When a firm increases its plant size in the long run and its per-unit costs fall,this is called

In the short run,which are most important in determining changes in output?

Suppose a professor gives up her teaching job to devote her time to writing textbooks.If salaries of professors rise,

Sally leaves her $34,000 secretarial position and invests her savings of $15,000 (on which she was earning 6 percent interest)to start her own agency.After expenses,her net income was $38,900.Her economic profit was

Average fixed costs

A downward-sloping portion of a long-run average total cost curve is the result of

The firm's average total costs will be a minimum at the output level where the

During the short-run period of the production process,a firm will be

The rate of return that owners of capital must receive in order to induce them to continue supplying the capital is often referred to as

James opened a baseball manufacturing operation,and initially the more balls he made,the lower the per-unit cost.Now,as output expands,his per-unit costs are rising.He concludes that diseconomies of scale have set in.Is he correct? Why?

Figure 8-10 -Using Figure 8-10,calculate the firm's approximate average total cost when it produces 12 units.

Which of the following would shift a firm's short-run cost curves downward?

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

Filters