Question 1

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

Accepted Answer

A) Diminishing returns are the result of changes in explicit costs. Diseconomies of scale are the result of changes in explicit costs and implicit costs. 
B) Diminishing returns refer to production while diseconomies of scale refer to costs. 
C) Diminishing returns cause a firm's marginal cost curve to rise; diseconomies of scale cause a firm's marginal cost curve to fall. 
D) Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run. 
A) Diminishing returns are the result of changes in explicit costs. Diseconomies of scale are the result of changes in explicit costs and implicit costs. 
B) Diminishing returns refer to production while diseconomies of scale refer to costs. 
C) Diminishing returns cause a firm's marginal cost curve to rise; diseconomies of scale cause a firm's marginal cost curve to fall. 
D) Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run.

Question 2

An isocost line shows

Accepted Answer

A) combinations of two inputs that result in the same total cost for a firm. 
B) combinations of two inputs that result in the same total output for a firm. 
C) combinations of the two inputs that result in the same profit for a firm. 
D) the different levels of total cost that result from various combinations of two inputs. 
A) combinations of two inputs that result in the same total cost for a firm. 
B) combinations of two inputs that result in the same total output for a firm. 
C) combinations of the two inputs that result in the same profit for a firm. 
D) the different levels of total cost that result from various combinations of two inputs.

Question 3

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy.Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

Accepted Answer

A) Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. 
B) as Toyota expanded its capacity, it experienced diseconomies of scale. 
C) Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. 
D) high demand for Toyota's cars prevented the company from focusing on its strength: auto design. 
A) Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. 
B) as Toyota expanded its capacity, it experienced diseconomies of scale. 
C) Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. 
D) high demand for Toyota's cars prevented the company from focusing on its strength: auto design.

Question 4

If production displays constant returns to scale, then all economies of scale have been exhausted.

Accepted Answer

A) True 
 B)False

Question 5

Figure 11-17
  
-Refer to Figure 11-17.Assume that production isoquants are convex.Total cost and output produced must increase for each of the following movements except one.Which movement is the exception?

Accepted Answer

A) point a to point b 
B) point a to point c 
C) point b to point c 
D) point b to point d 
A) point a to point b 
B) point a to point c 
C) point b to point c 
D) point b to point d

Question 6

The processes a firm uses to turn inputs into outputs of goods and services is called

Accepted Answer

A) technology. 
B) technological change. 
C) marginal analysis. 
D) positive economic analysis. 
A) technology. 
B) technological change. 
C) marginal analysis. 
D) positive economic analysis.

Question 7

Which of the following statements regarding a firm's long-run average total cost (LRATC)curve and its short-run average total cost (SRATC)curve is true?

Accepted Answer

A) The shape of the LRATC is affected by the law of diminishing returns. 
B) The SRATC, but not the LRATC, can be used by a firm's managers for planning. 
C) The LRATC shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed. 
D) The contribution of average fixed cost to LRATC is greater than its contribution to SRATC. 
A) The shape of the LRATC is affected by the law of diminishing returns. 
B) The SRATC, but not the LRATC, can be used by a firm's managers for planning. 
C) The LRATC shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed. 
D) The contribution of average fixed cost to LRATC is greater than its contribution to SRATC.

Question 8

In the short run, marginal product of labor increases at first and then falls because

Accepted Answer

A) as more labor is hired, they are not as skilled as the first ones hired. 
B) there are fewer opportunities for division of labor and specialization when fewer workers are hired. 
C) managerial inefficiency sets in when a firm gets too large. 
D) the new workers do not have as much experience as those who have been with the firm for a long time and therefore are not as productive. 
A) as more labor is hired, they are not as skilled as the first ones hired. 
B) there are fewer opportunities for division of labor and specialization when fewer workers are hired. 
C) managerial inefficiency sets in when a firm gets too large. 
D) the new workers do not have as much experience as those who have been with the firm for a long time and therefore are not as productive.

Question 9

State the law of diminishing marginal returns.

Accepted Answer

As more units of a variable in

Question 10

In the long run, all of a firm's inputs are variable.

Accepted Answer

A) True 
 B)False

Question 11

If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm's average fixed cost of production if it expands output to 25 units.

Accepted Answer

A) $300 
B) $15 
C) $12 
D) It is impossible to determine without additional information. 
A) $300 
B) $15 
C) $12 
D) It is impossible to determine without additional information.

Question 12

Gertrude Stork's Chocolate Shoppe normally employs 4 workers.When the Chocolate Shoppe hired a 5th worker, the Shoppe's total output decreased.Therefore,

Accepted Answer

A) the marginal product of the 5th worker is negative. 
B) the total output of Gertrude Stork's Chocolate Shoppe is negative. 
C) the average product of the 5th worker is negative. 
D) the 5th worker should be hired only if he is willing to accept a wage lower than the wage paid to the other 4 workers. 
A) the marginal product of the 5th worker is negative. 
B) the total output of Gertrude Stork's Chocolate Shoppe is negative. 
C) the average product of the 5th worker is negative. 
D) the 5th worker should be hired only if he is willing to accept a wage lower than the wage paid to the other 4 workers.

Question 13

If we have information about workers' marginal products, then total and average product can be found by

Accepted Answer

A) dividing marginal costs by the number of workers. 
B) multiplying the average marginal product times the number of workers. 
C) summing the marginal values to find the total and multiplying it times the number of workers to get the average. 
D) summing the marginal values to find the total and dividing it by the number of workers to get the average. 
A) dividing marginal costs by the number of workers. 
B) multiplying the average marginal product times the number of workers. 
C) summing the marginal values to find the total and multiplying it times the number of workers to get the average. 
D) summing the marginal values to find the total and dividing it by the number of workers to get the average.

Question 14

Figure 11-7
   
Figure 11-7 shows the cost structure for a firm.
-Refer to Figure 11-7.When the output level is 100 units, average fixed cost is

Accepted Answer

A) $12. 
B) $8. 
C) $4. 
D) This cannot be determined from the diagram. 
A) $12. 
B) $8. 
C) $4. 
D) This cannot be determined from the diagram.

Question 15

Which of the following statements correctly describes the distinction between technology and technological change?

Accepted Answer

A) Technology refers to the processes used by a firm to transform inputs into output of goods and services while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. 
B) Technology refers to the ability of a firm to increase its maximum output from a given quantity of inputs and technological change is the process by which the firm achieves this productivity gain. 
C) Technology is product-centered; its refers to developing new products with limited resources while technological change is process-centered in that it focuses on developing new production techniques. 
D) Technology involves research and development while technological change involves the use of more efficient machinery. 
A) Technology refers to the processes used by a firm to transform inputs into output of goods and services while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. 
B) Technology refers to the ability of a firm to increase its maximum output from a given quantity of inputs and technological change is the process by which the firm achieves this productivity gain. 
C) Technology is product-centered; its refers to developing new products with limited resources while technological change is process-centered in that it focuses on developing new production techniques. 
D) Technology involves research and development while technological change involves the use of more efficient machinery.

Question 16

Diseconomies of scale occur when

Accepted Answer

A) long-run average costs rise as a firm increases its output. 
B) long-run average costs fall as a firm expands its plant size. 
C) short-run average costs rise as a firm expands its plant size. 
D) long-run labor costs rise as a firm increases its output. 
A) long-run average costs rise as a firm increases its output. 
B) long-run average costs fall as a firm expands its plant size. 
C) short-run average costs rise as a firm expands its plant size. 
D) long-run labor costs rise as a firm increases its output.

Question 17

Table 11-7
   
Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 11-7.What is the variable cost of production when the firm produces 115 lanterns?

Accepted Answer

A) $1,556 
B) $1,157 
C) $956 
D) $10.05 
A) $1,556 
B) $1,157 
C) $956 
D) $10.05

Question 18

Which of the following statements is true?

Accepted Answer

A) As output increases, average fixed cost becomes smaller and smaller. 
B) Average fixed cost does not change as output increases. 
C) The marginal cost curve intersects the average fixed cost curve at its minimum point. 
D) When marginal cost is greater than average fixed cost, average fixed cost increases. 
A) As output increases, average fixed cost becomes smaller and smaller. 
B) Average fixed cost does not change as output increases. 
C) The marginal cost curve intersects the average fixed cost curve at its minimum point. 
D) When marginal cost is greater than average fixed cost, average fixed cost increases.

Question 19

Average total cost is equal to average variable cost minus average fixed cost.

Accepted Answer

A) True 
 B)False

Question 20

Marginal cost is the

Accepted Answer

A) change in average cost when an additional unit of output is produced. 
B) additional output when total cost is increased by one dollar. 
C) additional cost of producing an additional unit of output. 
D) change in the price of inputs if a firm buys more inputs to produce an additional unit of output. 
A) change in average cost when an additional unit of output is produced. 
B) additional output when total cost is increased by one dollar. 
C) additional cost of producing an additional unit of output. 
D) change in the price of inputs if a firm buys more inputs to produce an additional unit of output.

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

An isocost line shows

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy.Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

If production displays constant returns to scale, then all economies of scale have been exhausted.

Figure 11-17 -Refer to Figure 11-17.Assume that production isoquants are convex.Total cost and output produced must increase for each of the following movements except one.Which movement is the exception?

The processes a firm uses to turn inputs into outputs of goods and services is called

Which of the following statements regarding a firm's long-run average total cost (LRATC)curve and its short-run average total cost (SRATC)curve is true?

In the short run, marginal product of labor increases at first and then falls because

State the law of diminishing marginal returns.

In the long run, all of a firm's inputs are variable.

If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm's average fixed cost of production if it expands output to 25 units.

Gertrude Stork's Chocolate Shoppe normally employs 4 workers.When the Chocolate Shoppe hired a 5th worker, the Shoppe's total output decreased.Therefore,

If we have information about workers' marginal products, then total and average product can be found by

Figure 11-7 Figure 11-7 shows the cost structure for a firm. -Refer to Figure 11-7.When the output level is 100 units, average fixed cost is

Which of the following statements correctly describes the distinction between technology and technological change?

Diseconomies of scale occur when

Table 11-7 Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights. -Refer to Table 11-7.What is the variable cost of production when the firm produces 115 lanterns?

Which of the following statements is true?

Average total cost is equal to average variable cost minus average fixed cost.

Marginal cost is the

Economics: Foundations and Models

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Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

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Monopoly and Antitrust Policy

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Public Choice, Taxes, and the Distribution of Income

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Exam 11: Technology, Production, and Costs

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

An isocost line shows

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy.Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

If production displays constant returns to scale, then all economies of scale have been exhausted.

Figure 11-17 -Refer to Figure 11-17.Assume that production isoquants are convex.Total cost and output produced must increase for each of the following movements except one.Which movement is the exception?

The processes a firm uses to turn inputs into outputs of goods and services is called

Which of the following statements regarding a firm's long-run average total cost (LRATC)curve and its short-run average total cost (SRATC)curve is true?

In the short run, marginal product of labor increases at first and then falls because

State the law of diminishing marginal returns.

In the long run, all of a firm's inputs are variable.

If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm's average fixed cost of production if it expands output to 25 units.

Gertrude Stork's Chocolate Shoppe normally employs 4 workers.When the Chocolate Shoppe hired a 5th worker, the Shoppe's total output decreased.Therefore,

If we have information about workers' marginal products, then total and average product can be found by

Figure 11-7 Figure 11-7 shows the cost structure for a firm. -Refer to Figure 11-7.When the output level is 100 units, average fixed cost is

Which of the following statements correctly describes the distinction between technology and technological change?

Diseconomies of scale occur when

Table 11-7 Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights. -Refer to Table 11-7.What is the variable cost of production when the firm produces 115 lanterns?

Which of the following statements is true?

Average total cost is equal to average variable cost minus average fixed cost.

Marginal cost is the

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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