Question 1

Use the table below to answer the following question.  
Average total cost is at a minimum when output is

Accepted Answer

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

Question 2

The owners of a business

Accepted Answer

A) are paid the market rate of return for resources they supply to the firm. 
B) are residual income claimants. 
C) have little incentive to monitor shirking on the part of employees. 
D) have little incentive to provide their employees with an incentive system that encourages operational efficiency. 
A) are paid the market rate of return for resources they supply to the firm. 
B) are residual income claimants. 
C) have little incentive to monitor shirking on the part of employees. 
D) have little incentive to provide their employees with an incentive system that encourages operational efficiency.

Question 3

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 4

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

Accepted Answer

A) larger firms always have lower per-unit costs than smaller firms. 
B) at small output rates, AFC will be high, while at large output rates, MC will be high. 
C) diminishing returns will be present when output is small, while high AFC will push per-unit cost to high levels when output is large. 
D) diseconomies of scale will be present at both small and large output rates. 
A) larger firms always have lower per-unit costs than smaller firms. 
B) at small output rates, AFC will be high, while at large output rates, MC will be high. 
C) diminishing returns will be present when output is small, while high AFC will push per-unit cost to high levels when output is large. 
D) diseconomies of scale will be present at both small and large output rates.

Question 5

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 6

Which of the following would cause a firm's cost curves to shift upward?

Accepted Answer

A) a reduction in resource prices 
B) a decrease in taxes 
C) an improvement in technology 
D) an increase in government regulations 
A) a reduction in resource prices 
B) a decrease in taxes 
C) an improvement in technology 
D) an increase in government regulations

Question 7

Figure 8-10
  
-Using Figure 8-10, calculate the firm's approximate total cost when average total cost is at a minimum.

Accepted Answer

A) $60 
B) $80 
C) $100 
D) $120 
A) $60 
B) $80 
C) $100 
D) $120

Question 8

A profit-maximizing firm would

Accepted Answer

A) consider opportunity costs rather than accounting costs when making decisions about output. 
B) expand current output if the revenues expected from doing so were less than the expected costs. 
C) enlarge its current plant size if present depreciation costs were less than average variable costs. 
D) increase output in the next period if accounting profits during the previous period were positive. 
A) consider opportunity costs rather than accounting costs when making decisions about output. 
B) expand current output if the revenues expected from doing so were less than the expected costs. 
C) enlarge its current plant size if present depreciation costs were less than average variable costs. 
D) increase output in the next period if accounting profits during the previous period were positive.

Question 9

As a firm expands output, in the short run marginal costs will

Accepted Answer

A) always decline as output expands. 
B) increase at first but eventually level off and decline. 
C) eventually increase as the firm experiences diminishing returns to the fixed factors of production. 
D) initially increase at a decreasing rate but eventually increase at an increasing rate. 
A) always decline as output expands. 
B) increase at first but eventually level off and decline. 
C) eventually increase as the firm experiences diminishing returns to the fixed factors of production. 
D) initially increase at a decreasing rate but eventually increase at an increasing rate.

Question 10

Larger firms will often have lower minimum per-unit costs than smaller firms because

Accepted Answer

A) employee shirking is less of a problem. 
B) large-scale output allows greater specialization for both labor and machines in the production process. 
C) mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. 
D) all of the above are correct. 
A) employee shirking is less of a problem. 
B) large-scale output allows greater specialization for both labor and machines in the production process. 
C) mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. 
D) all of the above are correct.

Question 11

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

Accepted Answer

A) larger firms always have lower per-unit costs than smaller firms. 
B) at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns. 
C) diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large. 
D) diseconomies of scale will be present at both small and large output rates. 
A) larger firms always have lower per-unit costs than smaller firms. 
B) at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns. 
C) diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large. 
D) diseconomies of scale will be present at both small and large output rates.

Question 12

If high-level executives of a company award themselves sizable bonuses even though the firm they manage is making losses and performing poorly, this event is most likely to arise because of

Accepted Answer

A) the law of diminishing marginal returns. 
B) competition among business firms for high-level executives. 
C) economies of scale. 
D) the principal-agent problem. 
A) the law of diminishing marginal returns. 
B) competition among business firms for high-level executives. 
C) economies of scale. 
D) the principal-agent problem.

Question 13

Figure 8-5
  
-Refer to Figure 8-5. Which of the following would most likely cause the average total cost curve of a firm producing steel bolts to shift from ATC₁ to ATC₂?

Accepted Answer

A) an increase in demand for steel bolts 
B) an increase in the market price of steel bolts 
C) diminishing returns for the variable factors used to produce steel bolts 
D) an increase in the price of steel 
A) an increase in demand for steel bolts 
B) an increase in the market price of steel bolts 
C) diminishing returns for the variable factors used to produce steel bolts 
D) an increase in the price of steel

Question 14

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's

Accepted Answer

A) economic profit. 
B) accounting profit. 
C) opportunity cost of capital. 
D) long-run average total cost. 
A) economic profit. 
B) accounting profit. 
C) opportunity cost of capital. 
D) long-run average total cost.

Question 15

Larger firms will often have lower minimum per-unit costs than smaller firms because

Accepted Answer

A) employee shirking is less of a problem. 
B) large-scale output allows greater specialization for both labor and machines in the production process. 
C) mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. 
D) all of the above are correct. 
A) employee shirking is less of a problem. 
B) large-scale output allows greater specialization for both labor and machines in the production process. 
C) mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. 
D) all of the above are correct.

Question 16

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 17

Costs that a firm remaining in business will still incur even if it halts current production are called

Accepted Answer

A) fixed costs. 
B) variable costs. 
C) implicit costs. 
D) explicit costs. 
A) fixed costs. 
B) variable costs. 
C) implicit costs. 
D) explicit costs.

Question 18

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 10 units of output, its total fixed cost is

Accepted Answer

A) 6. 
B) 60. 
C) 70. 
D) 130. 
A) 6. 
B) 60. 
C) 70. 
D) 130.

Question 19

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 20

Which of the following provides the strongest evidence that the corporate form of business structure is relatively cost efficient in many industries?

Accepted Answer

A) the ability of the corporate business structure to compete effectively in most industries with other forms of business structure 
B) the fact that nearly three of every four businesses in the United States is an individual proprietorship 
C) the fact that economic theory indicates corporate managers have some leeway to pursue their own interests at the expense of greedy capitalists 
D) the ability of some corporate managers to achieve high salaries even though the firms they are directing are not earning economic profit 
A) the ability of the corporate business structure to compete effectively in most industries with other forms of business structure 
B) the fact that nearly three of every four businesses in the United States is an individual proprietorship 
C) the fact that economic theory indicates corporate managers have some leeway to pursue their own interests at the expense of greedy capitalists 
D) the ability of some corporate managers to achieve high salaries even though the firms they are directing are not earning economic profit

Exam 8: A: Costs and the Supply of Goods

Use the table below to answer the following question. Average total cost is at a minimum when output is

The owners of a business

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

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

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

Which of the following would cause a firm's cost curves to shift upward?

Figure 8-10 -Using Figure 8-10, calculate the firm's approximate total cost when average total cost is at a minimum.

A profit-maximizing firm would

As a firm expands output, in the short run marginal costs will

Larger firms will often have lower minimum per-unit costs than smaller firms because

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

If high-level executives of a company award themselves sizable bonuses even though the firm they manage is making losses and performing poorly, this event is most likely to arise because of

Figure 8-5 -Refer to Figure 8-5. Which of the following would most likely cause the average total cost curve of a firm producing steel bolts to shift from ATC₁ to ATC₂?

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's

Larger firms will often have lower minimum per-unit costs than smaller firms because

The marginal cost of a good is

Costs that a firm remaining in business will still incur even if it halts current production are called

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 10 units of output, its total fixed cost is

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

Which of the following provides the strongest evidence that the corporate form of business structure is relatively cost efficient in many industries?

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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