Question 1

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 2

The most important implicit cost generally omitted from the accounting statement of a firm is the

Accepted Answer

A) rental cost of machinery. 
B) cost of compliance with government regulations. 
C) opportunity cost of the equity capital invested by the owners. 
D) accounting cost incurred as the result of tax compliance. 
A) rental cost of machinery. 
B) cost of compliance with government regulations. 
C) opportunity cost of the equity capital invested by the owners. 
D) accounting cost incurred as the result of tax compliance.

Question 3

Which of the following is most likely to be true of economic and accounting profits?

Accepted Answer

A) Economic profits are less than accounting profits. 
B) Accounting profits are less than economic profits. 
C) Economic profits plus accounting profits equal zero. 
D) Accounting profits minus economic profits equal zero. 
A) Economic profits are less than accounting profits. 
B) Accounting profits are less than economic profits. 
C) Economic profits plus accounting profits equal zero. 
D) Accounting profits minus economic profits equal zero.

Question 4

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 5

If the CEO of a large corporation uses the corporate jet to fly friends to the Super Bowl at company expense, this is most clearly an example of

Accepted Answer

A) the duality problem. 
B) the violation of ceteris paribus conditions. 
C) a negative externality. 
D) the principal-agent problem. 
A) the duality problem. 
B) the violation of ceteris paribus conditions. 
C) a negative externality. 
D) the principal-agent problem.

Question 6

Use the table below to answer the following question.  
What is the average total cost at an output level of four units?

Accepted Answer

A) $1,200 
B) $1,400 
C) $1,500 
D) $2,000 
A) $1,200 
B) $1,400 
C) $1,500 
D) $2,000

Question 7

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 8

In the long run, firms in many industries often experience falling average total costs as a result of

Accepted Answer

A) gains through trade. 
B) increasing marginal returns. 
C) economies of scale. 
D) lower fixed costs. 
A) gains through trade. 
B) increasing marginal returns. 
C) economies of scale. 
D) lower fixed costs.

Question 9

Economic profit is

Accepted Answer

A) total revenues minus variable costs. 
B) total revenues minus private costs. 
C) total revenues minus explicit costs. 
D) total revenues minus total costs. 
A) total revenues minus variable costs. 
B) total revenues minus private costs. 
C) total revenues minus explicit costs. 
D) total revenues minus total costs.

Question 10

Economists refer to historical costs (irreversible costs already incurred) as

Accepted Answer

A) implicit costs. 
B) sunk costs. 
C) opportunity costs. 
D) variable costs. 
A) implicit costs. 
B) sunk costs. 
C) opportunity costs. 
D) variable costs.

Question 11

Figure 8-3
  
-Using Figure 8-3, calculate the total variable cost of producing three units.

Accepted Answer

A) $10 
B) $15 
C) $30 
D) $45 
A) $10 
B) $15 
C) $30 
D) $45

Question 12

The sum of the explicit and implicit costs incurred in the production process is called

Accepted Answer

A) fixed cost. 
B) sunk cost. 
C) marginal cost. 
D) total cost. 
A) fixed cost. 
B) sunk cost. 
C) marginal cost. 
D) total cost.

Question 13

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 14

Which of the following is characteristic of the corporate form of ownership?

Accepted Answer

A) unlimited liability 
B) easy transferability of ownership rights 
C) no divisible ownership rights 
D) absence of the principal-agent problem 
A) unlimited liability 
B) easy transferability of ownership rights 
C) no divisible ownership rights 
D) absence of the principal-agent problem

Question 15

Fixed costs are best defined as

Accepted Answer

A) costs that do not vary with output. 
B) costs that are at a minimum when output approaches the firm's capacity. 
C) the amount that one more unit of output adds to total costs. 
D) costs that decline as output increases. 
A) costs that do not vary with output. 
B) costs that are at a minimum when output approaches the firm's capacity. 
C) the amount that one more unit of output adds to total costs. 
D) costs that decline as output increases.

Question 16

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 17

In order for the law of diminishing returns to be present, we must have

Accepted Answer

A) at least one factor of production to be fixed. 
B) output decreasing as more laborers are hired. 
C) the price of labor increasing as more workers are hired. 
D) simultaneous changes in labor and capital. 
E) double the output when labor input is doubled. 
A) at least one factor of production to be fixed. 
B) output decreasing as more laborers are hired. 
C) the price of labor increasing as more workers are hired. 
D) simultaneous changes in labor and capital. 
E) double the output when labor input is doubled.

Question 18

Since it is costly for stockholders to monitor corporate managers, managers may be able to achieve personal perks and pursue other policies that conflict with profit maximization. This is an example of

Accepted Answer

A) an external benefit. 
B) economies of scale. 
C) the principal-agent problem. 
D) sunk costs. 
A) an external benefit. 
B) economies of scale. 
C) the principal-agent problem. 
D) sunk costs.

Question 19

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 20

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

Accepted Answer

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

Exam 8: A: Costs and the Supply of Goods

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

The most important implicit cost generally omitted from the accounting statement of a firm is the

Which of the following is most likely to be true of economic and accounting profits?

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

If the CEO of a large corporation uses the corporate jet to fly friends to the Super Bowl at company expense, this is most clearly an example of

Use the table below to answer the following question. What is the average total cost at an output level of four units?

The law of diminishing returns

In the long run, firms in many industries often experience falling average total costs as a result of

Economic profit is

Economists refer to historical costs (irreversible costs already incurred) as

Figure 8-3 -Using Figure 8-3, calculate the total variable cost of producing three units.

The sum of the explicit and implicit costs incurred in the production process is called

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

Which of the following is characteristic of the corporate form of ownership?

Fixed costs are best defined as

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

In order for the law of diminishing returns to be present, we must have

Since it is costly for stockholders to monitor corporate managers, managers may be able to achieve personal perks and pursue other policies that conflict with profit maximization. This is an example of

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

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

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

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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