Question 1

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 2

When would sunk costs be irrelevant for current decision making?

Accepted Answer

A) when the sunk costs are computed using accounting methods 
B) when the sunk costs are greater than variable costs 
C) when the sunk costs have been incurred only a short time ago 
D) Sunk cost are always irrelevant when making current decisions. 
A) when the sunk costs are computed using accounting methods 
B) when the sunk costs are greater than variable costs 
C) when the sunk costs have been incurred only a short time ago 
D) Sunk cost are always irrelevant when making current decisions.

Question 3

Advantages of the corporate form of business organization include

Accepted Answer

A) the ease of transferring ownership in a corporation. 
B) the limited liability concept that protects the stockholder from potential debts incurred by the corporation. 
C) the lack of employee shirking that occurs in corporations. 
D) both a and b. 
A) the ease of transferring ownership in a corporation. 
B) the limited liability concept that protects the stockholder from potential debts incurred by the corporation. 
C) the lack of employee shirking that occurs in corporations. 
D) both a and b.

Question 4

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 5

Which of the following 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) the property taxes on a building owned by the firm 
C) the rental income foregone because the business owns its building 
D) the interest paid on outstanding loans of the business 
A) the "competitive rate" salary the owner of the business pays herself for services provided 
B) the property taxes on a building owned by the firm 
C) the rental income foregone because the business owns its building 
D) the interest paid on outstanding loans of the business

Question 6

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. The marginal cost of producing the tenth unit is

Accepted Answer

A) 7. 
B) 13. 
C) 70. 
D) 130. 
A) 7. 
B) 13. 
C) 70. 
D) 130.

Question 7

Figure 8-9
  
-In Figure 8-9, which output would minimize the firm's average total cost of production?

Accepted Answer

A) 30 
B) 40 
C) 50 
D) 60 
A) 30 
B) 40 
C) 50 
D) 60

Question 8

Which of the following is true?

Accepted Answer

A) Under the partnership form of business organization, the owners are not personally liable for the debts of the business. 
B) When employees are paid by the hour, their incentive to shirk is removed. 
C) The limited liability of stockholders under the corporate business structure makes it easier to raise equity capital. 
D) Under the corporate form of business organization, the owners of the firm are personally liable for its debts. 
A) Under the partnership form of business organization, the owners are not personally liable for the debts of the business. 
B) When employees are paid by the hour, their incentive to shirk is removed. 
C) The limited liability of stockholders under the corporate business structure makes it easier to raise equity capital. 
D) Under the corporate form of business organization, the owners of the firm are personally liable for its debts.

Question 9

Ben quit his job as an economics professor to become a golf professional. He gave up his $30,000 salary and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture. After all expenses, his net winnings were $35,000. Ben's economic profits were

Accepted Answer

A) $35,000. 
B) $5,000. 
C) $2,000. 
D) zero. 
A) $35,000. 
B) $5,000. 
C) $2,000. 
D) zero.

Question 10

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 11

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 12

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

Accepted Answer

A) $10 
B) $15 
C) $60 
D) $75 
A) $10 
B) $15 
C) $60 
D) $75

Question 13

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 14

If the firm's fixed costs double while variable costs are unchanged, then

Accepted Answer

A) marginal cost more than doubles. 
B) marginal cost doubles. 
C) marginal cost remains unchanged. 
D) average total cost remains unchanged. 
E) average variable cost doubles. 
A) marginal cost more than doubles. 
B) marginal cost doubles. 
C) marginal cost remains unchanged. 
D) average total cost remains unchanged. 
E) average variable cost doubles.

Question 15

When an economist says a firm is earning zero economic profit, this implies that the firm

Accepted Answer

A) will be forced out of business in the near future unless market conditions change. 
B) is earning a zero rate of return on its assets. 
C) is earning as high a rate of return now as could be earned in other industries. 
D) has an accounting profit of zero. 
A) will be forced out of business in the near future unless market conditions change. 
B) is earning a zero rate of return on its assets. 
C) is earning as high a rate of return now as could be earned in other industries. 
D) has an accounting profit of zero.

Question 16

Which of the following factors would not shift the cost curves of an automobile company upward?

Accepted Answer

A) a regulation requiring all automobiles be equipped with improved safety equipment 
B) an increase in the price of steel used to make automobiles 
C) an increase in the property tax on buildings and equipment used by the automobile company 
D) An employee develops a new method of installing doors on the cars that requires half as many workers as before. 
A) a regulation requiring all automobiles be equipped with improved safety equipment 
B) an increase in the price of steel used to make automobiles 
C) an increase in the property tax on buildings and equipment used by the automobile company 
D) An employee develops a new method of installing doors on the cars that requires half as many workers as before.

Question 17

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. If the firm produces 15 units of output, its average fixed cost is

Accepted Answer

A) 4. 
B) 5. 
C) 6. 
D) 60. 
A) 4. 
B) 5. 
C) 6. 
D) 60.

Question 18

If a firm enlarges its factory size and realizes higher average costs of production then

Accepted Answer

A) it has experienced economies of scale. 
B) it has experienced diseconomies of scale. 
C) it has experienced constant returns to scale. 
D) the long-run average cost curve slopes downward. 
E) the long-run average cost curve shifts upward. 
A) it has experienced economies of scale. 
B) it has experienced diseconomies of scale. 
C) it has experienced constant returns to scale. 
D) the long-run average cost curve slopes downward. 
E) the long-run average cost curve shifts upward.

Question 19

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 20

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.

Exam 8: A: Costs and the Supply of Goods

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

When would sunk costs be irrelevant for current decision making?

Advantages of the corporate form of business organization include

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

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

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. The marginal cost of producing the tenth unit is

Figure 8-9 -In Figure 8-9, which output would minimize the firm's average total cost of production?

Which of the following is true?

Ben quit his job as an economics professor to become a golf professional. He gave up his $30,000 salary and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture. After all expenses, his net winnings were $35,000. Ben's economic profits were

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

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

When the marginal product of labor diminishes,

If the firm's fixed costs double while variable costs are unchanged, then

When an economist says a firm is earning zero economic profit, this implies that the firm

Which of the following factors would not shift the cost curves of an automobile company upward?

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. If the firm produces 15 units of output, its average fixed cost is

If a firm enlarges its factory size and realizes higher average costs of production then

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

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

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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