Question 1

Figure 8-9
  
-Using Figure 8-9, calculate the firm's approximate average total cost when it produces 50 units.

Accepted Answer

A) $10 
B) $13 
C) $15 
D) $17 
A) $10 
B) $13 
C) $15 
D) $17

Question 2

Figure 8-2
  
-Using Figure 8-2, calculate the firm's total cost of producing 30 units of output.

Accepted Answer

A) $8 
B) $120 
C) $180 
D) $240 
A) $8 
B) $120 
C) $180 
D) $240

Question 3

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is

Accepted Answer

A) 8 units. 
B) 10 units. 
C) 22 units. 
D) 30 units. 
A) 8 units. 
B) 10 units. 
C) 22 units. 
D) 30 units.

Question 4

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 5

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer. What economic concept best explains this observation?

Accepted Answer

A) the law of diminishing marginal utility 
B) the law of diminishing returns 
C) return equalization principle 
D) the principal-agent problem 
A) the law of diminishing marginal utility 
B) the law of diminishing returns 
C) return equalization principle 
D) the principal-agent problem

Question 6

Figure 8-10
  
-In Figure 8-10, which output would minimize the firm's average total cost of production?

Accepted Answer

A) 4 
B) 6 
C) 8 
D) 10 
A) 4 
B) 6 
C) 8 
D) 10

Question 7

Anne Teek works full time as the manager of her used furniture store in which she has invested $40,000. Last year, her total revenues were $90,000 and her costs were $60,000 for merchandise, gas, electricity, and other explicit-cost items. Ms. Teek pays herself a "competitive" salary of $30,000 per year. An economist would consider her profits for the year to be

Accepted Answer

A) -$40,000. 
B) $0. 
C) $0 minus the opportunity cost of the $40,000 of capital invested in the store. 
D) $30,000. 
A) -$40,000. 
B) $0. 
C) $0 minus the opportunity cost of the $40,000 of capital invested in the store. 
D) $30,000.

Question 8

Figure 8-4
  
-The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-4. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 9

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient, particularly when business firms are large?

Accepted Answer

A) the fact that almost 90 percent of business revenues are generated by corporations 
B) the fact that individual proprietorships are more numerous than corporations 
C) the fact that economic theory indicates corporate managers have some leeway to pursue their own interests at the expense of the owners of the firm 
D) the high salaries of many corporate executives, including some managing firms that are making economic losses 
A) the fact that almost 90 percent of business revenues are generated by corporations 
B) the fact that individual proprietorships are more numerous than corporations 
C) the fact that economic theory indicates corporate managers have some leeway to pursue their own interests at the expense of the owners of the firm 
D) the high salaries of many corporate executives, including some managing firms that are making economic losses

Question 10

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

Accepted Answer

A) property taxes on a building owned by the firm 
B) transportation costs paid to a trucking supplier 
C) rental payments for a building utilized by the company and rented from another party 
D) interest income foregone on funds invested in the firm by the owners 
A) property taxes on a building owned by the firm 
B) transportation costs paid to a trucking supplier 
C) rental payments for a building utilized by the company and rented from another party 
D) interest income foregone on funds invested in the firm by the owners

Question 11

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 12

Accounting costs are often unsatisfactory from the economist's point of view because

Accepted Answer

A) they fail to allow for depreciation, the wearing out of capital assets during a period. 
B) they often exclude the opportunity costs of the firm's equity capital. 
C) accountants attempt to minimize costs in order to make profits look good. 
D) accounting procedures are designed to overstate costs in order to minimize business tax liability. 
A) they fail to allow for depreciation, the wearing out of capital assets during a period. 
B) they often exclude the opportunity costs of the firm's equity capital. 
C) accountants attempt to minimize costs in order to make profits look good. 
D) accounting procedures are designed to overstate costs in order to minimize business tax liability.

Question 13

If a firm has a U-shaped long-run average cost curve,

Accepted Answer

A) its fixed cost rises as output rises. 
B) it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production. 
C) it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production. 
D) the firm can maximize its output by operating at the point of minimum long-run average cost. 
A) its fixed cost rises as output rises. 
B) it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production. 
C) it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production. 
D) the firm can maximize its output by operating at the point of minimum long-run average cost.

Question 14

Figure 8-1
  
-According to Figure 8-1, what is the firm's approximate total cost when it produces three units?

Accepted Answer

A) 10 
B) 16 
C) 48 
D) 60 
A) 10 
B) 16 
C) 48 
D) 60

Question 15

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 16

The short run is a time period such that

Accepted Answer

A) the existing firms in the market do not have sufficient time to change the amounts of any of the inputs that they employ. 
B) the existing firms in the market do not have sufficient time to either increase or decrease their current rate of output. 
C) the existing firms in the market do not have sufficient time to increase the size of their existing plant or build a new factory. 
D) new firms may build plants and enter the industry. 
A) the existing firms in the market do not have sufficient time to change the amounts of any of the inputs that they employ. 
B) the existing firms in the market do not have sufficient time to either increase or decrease their current rate of output. 
C) the existing firms in the market do not have sufficient time to increase the size of their existing plant or build a new factory. 
D) new firms may build plants and enter the industry.

Question 17

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 18

Al's Donuts produces about 600 dozen doughnuts daily. If flour prices increase 20 percent

Accepted Answer

A) only marginal cost will shift up. 
B) only marginal cost and average total cost will shift up. 
C) marginal cost, average variable cost, and average total cost will shift up. 
D) marginal cost, average total cost, and average fixed cost will shift up. 
A) only marginal cost will shift up. 
B) only marginal cost and average total cost will shift up. 
C) marginal cost, average variable cost, and average total cost will shift up. 
D) marginal cost, average total cost, and average fixed cost will shift up.

Question 19

A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $300. The utilities, to be paid by the owner, cost $100 per month if the house is occupied; otherwise zero. If the owner wishes to minimize her losses from the house, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.) (Hint: Remember the concept of sunk cost.)

Accepted Answer

A) $0 
B) $100 
C) $200 
D) $400 
A) $0 
B) $100 
C) $200 
D) $400

Question 20

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.

Exam 8: A: Costs and the Supply of Goods

Figure 8-9 -Using Figure 8-9, calculate the firm's approximate average total cost when it produces 50 units.

Figure 8-2 -Using Figure 8-2, calculate the firm's total cost of producing 30 units of output.

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is

If variable cost at each output level doubles,

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer. What economic concept best explains this observation?

Figure 8-10 -In Figure 8-10, which output would minimize the firm's average total cost of production?

Figure 8-4 -The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-4. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient, particularly when business firms are large?

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

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

Accounting costs are often unsatisfactory from the economist's point of view because

If a firm has a U-shaped long-run average cost curve,

Figure 8-1 -According to Figure 8-1, what is the firm's approximate total cost when it produces three units?

The costs of a firm indicate the desire of consumers for

The short run is a time period such that

Al's Donuts produces about 600 dozen doughnuts daily. If flour prices increase 20 percent

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

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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