Question 1

Average fixed costs

Accepted Answer

A) will remain unchanged as output expands. 
B) are defined as the change in total costs divided by the change in output. 
C) will always increase as output increases. 
D) will always decrease as output expands. 
A) will remain unchanged as output expands. 
B) are defined as the change in total costs divided by the change in output. 
C) will always increase as output increases. 
D) will always decrease as output expands.

Question 2

Which of the following would shift a firm's short-run cost curves downward?

Accepted Answer

A) an advance in technology 
B) an increase in employees' wages 
C) an increase in the demand for the firm's product 
D) an increase in excise taxes levied on the firm's product 
A) an advance in technology 
B) an increase in employees' wages 
C) an increase in the demand for the firm's product 
D) an increase in excise taxes levied on the firm's product

Question 3

The minimum points of the average variable cost and average total cost curves occur where

Accepted Answer

A) the marginal cost curve lies below the average variable cost and average total cost curves. 
B) the marginal cost curve intersects those curves. 
C) the average variable cost and average total cost curves intersect. 
D) the slope of total cost is the smallest. 
A) the marginal cost curve lies below the average variable cost and average total cost curves. 
B) the marginal cost curve intersects those curves. 
C) the average variable cost and average total cost curves intersect. 
D) the slope of total cost is the smallest.

Question 4

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

Accepted Answer

A) $5 
B) $7 
C) $8 
D) $15 
A) $5 
B) $7 
C) $8 
D) $15

Question 5

Which of the following must be true if average total costs are rising?

Accepted Answer

A) Average fixed costs must be rising. 
B) Total fixed costs must be rising. 
C) Average variable costs must be falling. 
D) Marginal costs must be greater than average total costs. 
A) Average fixed costs must be rising. 
B) Total fixed costs must be rising. 
C) Average variable costs must be falling. 
D) Marginal costs must be greater than average total costs.

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. If the firm produces 10 units of output, its total cost is

Accepted Answer

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

Question 7

Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of professors rise,

Accepted Answer

A) her accounting profit will rise. 
B) her accounting profit will fall. 
C) her explicit costs will rise. 
D) her economic profit from textbooks will fall. 
E) her economic profit from textbooks will rise. 
A) her accounting profit will rise. 
B) her accounting profit will fall. 
C) her explicit costs will rise. 
D) her economic profit from textbooks will fall. 
E) her economic profit from textbooks will rise.

Question 8

Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward?

Accepted Answer

A) an increase in the price of fertilizer 
B) an increase in the tax on diesel fuel, which is used by the farmer 
C) the development of a new, more efficient corn harvester 
D) the adoption of a regulation requiring farmers to treat their crops with three new pesticides. 
A) an increase in the price of fertilizer 
B) an increase in the tax on diesel fuel, which is used by the farmer 
C) the development of a new, more efficient corn harvester 
D) the adoption of a regulation requiring farmers to treat their crops with three new pesticides.

Question 9

Interest foregone on financial capital invested in a firm represents an economic cost

Accepted Answer

A) only if the firm borrows to finance capital investments. 
B) only when the funds are used to buy machinery. 
C) because funds invested in the firm could be earning interest elsewhere. 
D) because accountants have traditionally input an interest cost for this item. 
A) only if the firm borrows to finance capital investments. 
B) only when the funds are used to buy machinery. 
C) because funds invested in the firm could be earning interest elsewhere. 
D) because accountants have traditionally input an interest cost for this item.

Question 10

Figure 8-1
  
-What is the firm's total cost in Figure 8-1 when it produces four units?

Accepted Answer

A) 11 
B) 15 
C) 60 
D) 75 
A) 11 
B) 15 
C) 60 
D) 75

Question 11

A disadvantage of team production compared to contracting out is that

Accepted Answer

A) transaction costs are often higher with team production. 
B) the level of specialized knowledge required by team production is greater than with contracting out. 
C) the problem of shirking must be more carefully addressed with team production. 
D) team production increases the cost of production in most situations. 
A) transaction costs are often higher with team production. 
B) the level of specialized knowledge required by team production is greater than with contracting out. 
C) the problem of shirking must be more carefully addressed with team production. 
D) team production increases the cost of production in most situations.

Question 12

Which one of the following decisions most clearly reflects a lack of understanding of the concept of sunk costs?

Accepted Answer

A) You pay to have your car towed back to the repair shop because it was not fixed properly the first time. 
B) You decide to get a master's degree because you cannot find a job in the field in which you majored. 
C) You decide to purchase a piece of machinery for your business that will eliminate three employees' positions. 
D) You study eight hours for a final exam even though there is no way now that you can pass the course. 
A) You pay to have your car towed back to the repair shop because it was not fixed properly the first time. 
B) You decide to get a master's degree because you cannot find a job in the field in which you majored. 
C) You decide to purchase a piece of machinery for your business that will eliminate three employees' positions. 
D) You study eight hours for a final exam even though there is no way now that you can pass the course.

Question 13

Figure 8-2
  
-According to Figure 8-2, at what output would a properly constructed marginal cost curve cross the ATC curve?

Accepted Answer

A) 15 
B) 20 
C) 25 
D) 30 
A) 15 
B) 20 
C) 25 
D) 30

Question 14

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 also own a business, 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 also own a business, 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 15

A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent?

Accepted Answer

A) $3,500 
B) $5,000 
C) $6,000 
D) $8,500 
A) $3,500 
B) $5,000 
C) $6,000 
D) $8,500

Question 16

Marginal cost is defined as the increase in total cost resulting from an increase in

Accepted Answer

A) one unit of output. 
B) output of 100 units. 
C) a firm's plant size. 
D) one unit of labor. 
A) one unit of output. 
B) output of 100 units. 
C) a firm's plant size. 
D) one unit of labor.

Question 17

Sunk or "historical" costs are costs

Accepted Answer

A) associated with current operational decisions. 
B) that have already been incurred as the result of past decisions. 
C) that add to the firm's marginal costs. 
D) that form the major component of the firm's variable costs. 
A) associated with current operational decisions. 
B) that have already been incurred as the result of past decisions. 
C) that add to the firm's marginal costs. 
D) that form the major component of the firm's variable costs.

Question 18

The relationship between average and marginal variables can be stated as follows: if the marginal is greater than the average,

Accepted Answer

A) the average is increasing. 
B) the average is decreasing. 
C) the marginal is increasing. 
D) the marginal is decreasing. 
E) the total is decreasing. 
A) the average is increasing. 
B) the average is decreasing. 
C) the marginal is increasing. 
D) the marginal is decreasing. 
E) the total is decreasing.

Question 19

Figure 8-1
  
-At what output in Figure 8-1 would the firm's per-unit cost of production be minimized?

Accepted Answer

A) 3 
B) 4 
C) 5 
D) 6 
A) 3 
B) 4 
C) 5 
D) 6

Question 20

The rate of return that owners of capital must receive in order to induce them to continue supplying the capital is often referred to as

Accepted Answer

A) accounting profit. 
B) the normal or market rate of return. 
C) economic profit. 
D) the accounting rate of return. 
A) accounting profit. 
B) the normal or market rate of return. 
C) economic profit. 
D) the accounting rate of return.

Exam 8: A: Costs and the Supply of Goods

Average fixed costs

Which of the following would shift a firm's short-run cost curves downward?

The minimum points of the average variable cost and average total cost curves occur where

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

Which of the following must be true if average total costs are rising?

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 cost is

Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of professors rise,

Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward?

Interest foregone on financial capital invested in a firm represents an economic cost

Figure 8-1 -What is the firm's total cost in Figure 8-1 when it produces four units?

A disadvantage of team production compared to contracting out is that

Which one of the following decisions most clearly reflects a lack of understanding of the concept of sunk costs?

Figure 8-2 -According to Figure 8-2, at what output would a properly constructed marginal cost curve cross the ATC curve?

Which of the following is true?

A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent?

Marginal cost is defined as the increase in total cost resulting from an increase in

Sunk or "historical" costs are costs

The relationship between average and marginal variables can be stated as follows: if the marginal is greater than the average,

Figure 8-1 -At what output in Figure 8-1 would the firm's per-unit cost of production be minimized?

The rate of return that owners of capital must receive in order to induce them to continue supplying the capital is often referred to as

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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