Question 1

If a firm's per-unit costs fall as it produces a larger output,

Accepted Answer

A) average variable cost must also decline as output expands. 
B) marginal cost must also decline as output expands. 
C) average fixed cost must be less than average variable costs. 
D) marginal cost must be less than average total cost. 
A) average variable cost must also decline as output expands. 
B) marginal cost must also decline as output expands. 
C) average fixed cost must be less than average variable costs. 
D) marginal cost must be less than average total cost.

Question 2

Figure 8-6
  
-At what output does the firm depicted in Figure 8-6 begin to experience diminishing marginal returns to its variable factors of production?

Accepted Answer

A) Q₁ 
B) Q₂ 
C) Q₃ 
D) an output beyond Q₃ 
A) Q₁ 
B) Q₂ 
C) Q₃ 
D) an output beyond Q₃

Question 3

Mary owns her own business and works full time in the store without paying herself a salary. She has $20,000 of her own money invested in the store that she withdrew from her savings account, which earned 10 percent interest. She was offered a job last year making $28,000 per year but turned it down. If Mary's accounting statements show revenues of $100,000 and accounting costs of $60,000, then Mary's

Accepted Answer

A) accounting profit is $20,000 and her economic profit is zero. 
B) accounting profit is $40,000 and she is making an economic loss of $8,000. 
C) accounting profit is $40,000 and her economic profit is $10,000. 
D) accounting and economic profit is $40,000. 
A) accounting profit is $20,000 and her economic profit is zero. 
B) accounting profit is $40,000 and she is making an economic loss of $8,000. 
C) accounting profit is $40,000 and her economic profit is $10,000. 
D) accounting and economic profit is $40,000.

Question 4

Marginal cost is best defined as

Accepted Answer

A) a cost that does not vary with the rate of output. 
B) the difference between fixed and variable cost at any level of output. 
C) the amount added to total cost when one more unit of output is produced. 
D) the difference between price and average total cost at the profit-maximizing level of output. 
A) a cost that does not vary with the rate of output. 
B) the difference between fixed and variable cost at any level of output. 
C) the amount added to total cost when one more unit of output is produced. 
D) the difference between price and average total cost at the profit-maximizing level of output.

Question 5

In the short run, the marginal cost curve crosses the average total cost curve at

Accepted Answer

A) a point just below the average fixed cost curve. 
B) the minimum point on the average total cost curve. 
C) the maximum point of the average variable cost curve. 
D) all of the above points. 
A) a point just below the average fixed cost curve. 
B) the minimum point on the average total cost curve. 
C) the maximum point of the average variable cost curve. 
D) all of the above points.

Question 6

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

Accepted Answer

A) $40. 
B) $60. 
C) $6,000. 
D) $8,000. 
A) $40. 
B) $60. 
C) $6,000. 
D) $8,000.

Question 7

Approximately three-fourths of all U.S. firms are

Accepted Answer

A) corporations. 
B) proprietorships. 
C) partnerships. 
D) consumer cooperatives. 
A) corporations. 
B) proprietorships. 
C) partnerships. 
D) consumer cooperatives.

Question 8

Where marginal cost is less than average cost,

Accepted Answer

A) opportunity cost must have been excluded from the calculation of marginal cost. 
B) marginal cost must be falling. 
C) marginal cost must be rising. 
D) marginal cost may be rising, falling, or constant. 
A) opportunity cost must have been excluded from the calculation of marginal cost. 
B) marginal cost must be falling. 
C) marginal cost must be rising. 
D) marginal cost may be rising, falling, or constant.

Question 9

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 10

A family has decided to go away for the summer. The monthly mortgage payment on the family's house is $1,000. Water, electricity, natural gas, and maintenance bills, to be paid by the family, will be $700 per month if the house is occupied and zero otherwise. If the family wishes to minimize losses from being away, it should rent the house for as much as the market will bear, as long as the monthly rent is above which of the following? (Assume wear and tear to be the same whether or not the house is occupied.)

Accepted Answer

A) $300 
B) $700 
C) $1,000 
D) $1,700 
A) $300 
B) $700 
C) $1,000 
D) $1,700

Question 11

Profit-sharing plans, where employees receive bonuses in proportion to the company's profits,

Accepted Answer

A) reduce the principal-agent problem. 
B) are intended to reduce the number of employees who are residual claimants. 
C) eliminate shirking problems. 
D) are essentially gifts to employees and do not generate any benefit for the firm's owners. 
A) reduce the principal-agent problem. 
B) are intended to reduce the number of employees who are residual claimants. 
C) eliminate shirking problems. 
D) are essentially gifts to employees and do not generate any benefit for the firm's owners.

Question 12

Which of the following is a difference between corporations and partnerships?

Accepted Answer

A) Partnerships are subject to double taxation; corporations are not. 
B) With partnerships, ownership rights are divisible and easily transferable; this is not true for corporations. 
C) Corporate owners face limited liability; owners of partnerships do not. 
D) Corporations always have more owners than partnerships. 
A) Partnerships are subject to double taxation; corporations are not. 
B) With partnerships, ownership rights are divisible and easily transferable; this is not true for corporations. 
C) Corporate owners face limited liability; owners of partnerships do not. 
D) Corporations always have more owners than partnerships.

Question 13

Figure 8-13
  
-Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing

Accepted Answer

A) economies of scale. 
B) increasing average cost. 
C) economies of cost. 
D) a decrease in average plant size. 
E) diseconomies of scale. 
A) economies of scale. 
B) increasing average cost. 
C) economies of cost. 
D) a decrease in average plant size. 
E) diseconomies of scale.

Question 14

Sunk costs

Accepted Answer

A) are expenditures made in the past that cannot be regained no matter what is done now or in the future. 
B) are a component of variable costs, but not fixed costs. 
C) represent foregone opportunities, and therefore the firm's managers should consider these costs when they are making current decisions. 
D) can be avoided if the firm goes out of business. 
A) are expenditures made in the past that cannot be regained no matter what is done now or in the future. 
B) are a component of variable costs, but not fixed costs. 
C) represent foregone opportunities, and therefore the firm's managers should consider these costs when they are making current decisions. 
D) can be avoided if the firm goes out of business.

Question 15

Figure 8-3
  
-The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-3. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

Accepted Answer

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

Question 16

The average fixed costs of a firm equal

Accepted Answer

A) implicit costs divided by output. 
B) explicit costs divided by output. 
C) total cost minus variable cost. 
D) (total cost minus variable cost) divided by output. 
A) implicit costs divided by output. 
B) explicit costs divided by output. 
C) total cost minus variable cost. 
D) (total cost minus variable cost) divided by output.

Question 17

Which of the following represents a long-run adjustment?

Accepted Answer

A) the hiring of four additional cashiers by a supermarket 
B) a cutback on purchases of coke and iron ore by a steel manufacturer 
C) construction of a new assembly-line plant by a car manufacturer 
D) the extra dose of fertilizer used by a farmer on his wheat crop 
A) the hiring of four additional cashiers by a supermarket 
B) a cutback on purchases of coke and iron ore by a steel manufacturer 
C) construction of a new assembly-line plant by a car manufacturer 
D) the extra dose of fertilizer used by a farmer on his wheat crop

Question 18

An activity known as shirking is least likely to occur when

Accepted Answer

A) workers are not monitored. 
B) all workers are paid the same wage rate. 
C) the earnings of workers are closely tied to the worker's output. 
D) the firm is organized as a corporation. 
A) workers are not monitored. 
B) all workers are paid the same wage rate. 
C) the earnings of workers are closely tied to the worker's output. 
D) the firm is organized as a corporation.

Question 19

As output is expanded, if MC is less than ATC,

Accepted Answer

A) ATC must be at its minimum. 
B) ATC must be at its maximum. 
C) ATC must be decreasing. 
D) the firm must be earning economic profit. 
A) ATC must be at its minimum. 
B) ATC must be at its maximum. 
C) ATC must be decreasing. 
D) the firm must be earning economic profit.

Question 20

In 1632, the Virginia Legislature decreed that all love apples must be sold for $1 per bushel (no more, no less). At the time, Mr. McKintoch had 1,000 bushels of love apples ready for harvesting. His sunk costs were $1,100, and his total costs (including sunk costs) would have been $1,800 if he harvested. If McKintoch decided not to harvest because he did not think he could cover his total costs, he

Accepted Answer

A) made the wrong decision, but for the right reason. 
B) made the wrong decision; the sunk cost component of total cost should not have affected his decision to harvest. 
C) made the correct decision and considered the correct decision-making criteria; a firm should never sell for less than its costs. 
D) One cannot determine from the data whether he should have harvested the love apples. 
A) made the wrong decision, but for the right reason. 
B) made the wrong decision; the sunk cost component of total cost should not have affected his decision to harvest. 
C) made the correct decision and considered the correct decision-making criteria; a firm should never sell for less than its costs. 
D) One cannot determine from the data whether he should have harvested the love apples.

Exam 8: A: Costs and the Supply of Goods

If a firm's per-unit costs fall as it produces a larger output,

Figure 8-6 -At what output does the firm depicted in Figure 8-6 begin to experience diminishing marginal returns to its variable factors of production?

Marginal cost is best defined as

In the short run, the marginal cost curve crosses the average total cost curve at

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

Approximately three-fourths of all U.S. firms are

Where marginal cost is less than average cost,

A downward-sloping portion of a long-run average total cost curve is the result of

Profit-sharing plans, where employees receive bonuses in proportion to the company's profits,

Which of the following is a difference between corporations and partnerships?

Figure 8-13 -Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing

Sunk costs

Figure 8-3 -The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-3. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

The average fixed costs of a firm equal

Which of the following represents a long-run adjustment?

An activity known as shirking is least likely to occur when

As output is expanded, if MC is less than ATC,

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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