Question 1

Figure 8-4
  
-According to Figure 8-4,at what output would a properly constructed marginal cost curve cross the ATC curve?

Accepted Answer

A) 2 
B) 3 
C) 4 
D) 5 
A) 2 
B) 3 
C) 4 
D) 5

Question 2

Which of the following would cause a firm's cost curve to shift downward?

Accepted Answer

A) a decrease in resource prices 
B) an increase in taxes 
C) an increase in demand for the firm's product 
D) a reduction in output 
A) a decrease in resource prices 
B) an increase in taxes 
C) an increase in demand for the firm's product 
D) a reduction in output

Question 3

The long-run average total cost curve

Accepted Answer

A) is an envelope-shaped curve mapped out by the short-run average total cost curves for alternative plant sizes. 
B) intersects the minimum point of each short-run average total cost curve for alternative plant sizes. 
C) rises throughout its entire range when increasing returns are present. 
D) falls throughout its entire range due to the law of diminishing returns. 
A) is an envelope-shaped curve mapped out by the short-run average total cost curves for alternative plant sizes. 
B) intersects the minimum point of each short-run average total cost curve for alternative plant sizes. 
C) rises throughout its entire range when increasing returns are present. 
D) falls throughout its entire range due to the law of diminishing returns.

Question 4

Profit-sharing plans,where employees receive bonuses in proportion to the company's profits,

Accepted Answer

A) reduce the principal-agent problem. 
B) are intended to reduce the number of employees who are residual claimants. 
C) eliminate shirking problems. 
D) are essentially gifts to employees and do not generate any benefit for the firm's owners. 
A) reduce the principal-agent problem. 
B) are intended to reduce the number of employees who are residual claimants. 
C) eliminate shirking problems. 
D) are essentially gifts to employees and do not generate any benefit for the firm's owners.

Question 5

An airline can increase its profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

Accepted Answer

A) additional passengers are needed to balance the load. 
B) the marginal cost of additional passengers is very small. 
C) additional passengers add little to fixed costs. 
D) such passengers add more to profits than do those with reserved seats. 
A) additional passengers are needed to balance the load. 
B) the marginal cost of additional passengers is very small. 
C) additional passengers add little to fixed costs. 
D) such passengers add more to profits than do those with reserved seats.

Question 6

When the marginal product of labor diminishes,

Accepted Answer

A) average fixed cost rises. 
B) average variable cost is constant. 
C) marginal cost rises. 
D) average total cost must rise. 
E) total cost rises at a diminishing rate. 
A) average fixed cost rises. 
B) average variable cost is constant. 
C) marginal cost rises. 
D) average total cost must rise. 
E) total cost rises at a diminishing rate.

Question 7

If variable cost at each output level doubles,

Accepted Answer

A) ATC doubles. 
B) AFC doubles. 
C) MC remains unchanged. 
D) MC doubles. 
E) MC less than doubles. 
A) ATC doubles. 
B) AFC doubles. 
C) MC remains unchanged. 
D) MC doubles. 
E) MC less than doubles.

Question 8

A fruit packing plant usually shuts down for three months each year.During that period,its

Accepted Answer

A) fixed costs are greater than zero. 
B) variable costs are greater than zero. 
C) total costs are zero. 
D) fixed costs are zero. 
A) fixed costs are greater than zero. 
B) variable costs are greater than zero. 
C) total costs are zero. 
D) fixed costs are zero.

Question 9

When the owner of a business invests his or her own money in the business,they give up the interest this money could be earning in the bank.This forgone interest is called

Accepted Answer

A) the marginal cost of diminishing financial services. 
B) the opportunity cost of equity capital. 
C) the opportunity cost of labor services. 
D) interest expense and is included as a cost in the accounting statements of the business. 
A) the marginal cost of diminishing financial services. 
B) the opportunity cost of equity capital. 
C) the opportunity cost of labor services. 
D) interest expense and is included as a cost in the accounting statements of the business.

Question 10

With respect to the average cost curves,the marginal cost curve

Accepted Answer

A) intersects average total cost,average fixed cost,and average variable cost at their minimum points. 
B) intersects average total cost,average fixed cost,and average variable cost at their maximum points. 
C) intersects both average total cost and average variable cost at their minimum points. 
D) intersects average total cost where it is increasing and average variable cost where it is decreasing. 
E) intersects only average total cost at its minimum point. 
A) intersects average total cost,average fixed cost,and average variable cost at their minimum points. 
B) intersects average total cost,average fixed cost,and average variable cost at their maximum points. 
C) intersects both average total cost and average variable cost at their minimum points. 
D) intersects average total cost where it is increasing and average variable cost where it is decreasing. 
E) intersects only average total cost at its minimum point.

Question 11

The costs of a firm indicate the desire of consumers for

Accepted Answer

A) the product produced by the firm. 
B) other goods that might have been produced with the same resources. 
C) goods that can be easily substituted for the good produced by the firm. 
D) goods that are complementary with the good produced by the firm. 
A) the product produced by the firm. 
B) other goods that might have been produced with the same resources. 
C) goods that can be easily substituted for the good produced by the firm. 
D) goods that are complementary with the good produced by the firm.

Question 12

Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?

Accepted Answer

A) They recognize that operational efficiency promotes the public interest. 
B) As residual claimants,owners will receive a higher income from increased efficiency. 
C) The owners will be able to keep production costs low by providing free managerial services to the firm. 
D) The owners will be able to gain by paying employees below market wages,which will improve the overall efficiency of the economy. 
A) They recognize that operational efficiency promotes the public interest. 
B) As residual claimants,owners will receive a higher income from increased efficiency. 
C) The owners will be able to keep production costs low by providing free managerial services to the firm. 
D) The owners will be able to gain by paying employees below market wages,which will improve the overall efficiency of the economy.

Question 13

Mr.Capps recently built a dental floss factory in Montana.It cost $500,000 and is expected to last ten years.The plant can only be used to produce dental floss and will have no scrap value.When a recession occurs,the yearly revenue from the plant declines to $35,000,compared to costs of $25,000 just for the variable resources required to produce the current rate of output.Mr.Capps should

Accepted Answer

A) shut down since he is experiencing economic losses (in other words,he will not get his $500,000 back). 
B) reduce the price of dental floss if his demand is inelastic in order to increase his revenue. 
C) raise the price of dental floss if his demand is elastic in order to increase his revenue. 
D) continue to operate since he is covering his variable costs and the cost of the plant is a sunk cost. 
A) shut down since he is experiencing economic losses (in other words,he will not get his $500,000 back). 
B) reduce the price of dental floss if his demand is inelastic in order to increase his revenue. 
C) raise the price of dental floss if his demand is elastic in order to increase his revenue. 
D) continue to operate since he is covering his variable costs and the cost of the plant is a sunk cost.

Question 14

Which of the following must be true if average variable costs are decreasing?

Accepted Answer

A) Average fixed cost exceeds average total cost. 
B) Marginal cost exceeds average variable cost. 
C) Marginal cost is less than average variable cost. 
D) Marginal cost is less than average total cost. 
A) Average fixed cost exceeds average total cost. 
B) Marginal cost exceeds average variable cost. 
C) Marginal cost is less than average variable cost. 
D) Marginal cost is less than average total cost.

Question 15

Which of the following will become smaller and smaller as the firm expands output?

Accepted Answer

A) average total cost 
B) average fixed cost 
C) marginal cost 
D) total fixed cost 
A) average total cost 
B) average fixed cost 
C) marginal cost 
D) total fixed cost

Question 16

A large aircraft manufacturer,like Boeing,may have a cost advantage over a new smaller manufacturer because

Accepted Answer

A) of diseconomies of scale. 
B) of economies of scale. 
C) of diminishing returns to a fixed factor of production. 
D) the principal agent problem is generally less severe for larger firms. 
A) of diseconomies of scale. 
B) of economies of scale. 
C) of diminishing returns to a fixed factor of production. 
D) the principal agent problem is generally less severe for larger firms.

Question 17

If doubling the quantity of inputs more than doubles the quantity of outputs,the firm is experiencing

Accepted Answer

A) increasing returns to scale. 
B) decreasing returns to scale. 
C) constant returns to scale. 
D) increasing costs per unit of output. 
A) increasing returns to scale. 
B) decreasing returns to scale. 
C) constant returns to scale. 
D) increasing costs per unit of output.

Question 18

The marginal cost of a good is

Accepted Answer

A) lower for competitive firms than for monopolists. 
B) the cost of an additional unit. 
C) equal to fixed cost at high output levels. 
D) equal to variable cost when the firm is maximizing profit. 
A) lower for competitive firms than for monopolists. 
B) the cost of an additional unit. 
C) equal to fixed cost at high output levels. 
D) equal to variable cost when the firm is maximizing profit.

Question 19

Which of the following must be true if average total costs are declining?

Accepted Answer

A) Marginal cost is less than average total cost. 
B) Marginal cost is less than average variable cost. 
C) Marginal cost is greater than average total cost. 
D) Marginal cost equals average total cost. 
A) Marginal cost is less than average total cost. 
B) Marginal cost is less than average variable cost. 
C) Marginal cost is greater than average total cost. 
D) Marginal cost equals average total cost.

Question 20

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.

Exam 21: Acosts and the Supply of Goods

Figure 8-4 -According to Figure 8-4,at what output would a properly constructed marginal cost curve cross the ATC curve?

Which of the following would cause a firm's cost curve to shift downward?

The long-run average total cost curve

Profit-sharing plans,where employees receive bonuses in proportion to the company's profits,

An airline can increase its profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

When the marginal product of labor diminishes,

If variable cost at each output level doubles,

A fruit packing plant usually shuts down for three months each year.During that period,its

When the owner of a business invests his or her own money in the business,they give up the interest this money could be earning in the bank.This forgone interest is called

With respect to the average cost curves,the marginal cost curve

The costs of a firm indicate the desire of consumers for

Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?

Which of the following must be true if average variable costs are decreasing?

Which of the following will become smaller and smaller as the firm expands output?

A large aircraft manufacturer,like Boeing,may have a cost advantage over a new smaller manufacturer because

If doubling the quantity of inputs more than doubles the quantity of outputs,the firm is experiencing

The marginal cost of a good is

Which of the following must be true if average total costs are declining?

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

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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