Question 1

When costs that vary with the level of output are divided by the output,you have calculated:

Accepted Answer

A)  total changing cost. 
B)  total fixed cost. 
C)  average fixed cost. 
D)  average variable cost. 
A)  total changing cost. 
B)  total fixed cost. 
C)  average fixed cost. 
D)  average variable cost.

Question 2

Payments to nonowners of a firm are called:

Accepted Answer

A)  implicit costs. 
B)  accounting costs. 
C)  explicit costs. 
D)  economic costs. 
A)  implicit costs. 
B)  accounting costs. 
C)  explicit costs. 
D)  economic costs.

Question 3

Exhibit 6-3 A marginal product curve
  
-As shown in Exhibit 6-3,the marginal product of labor for the last worker hired when 5 workers are employed per day is:

Accepted Answer

A)  50. 
B)  100. 
C)  150. 
D)  175. 
A)  50. 
B)  100. 
C)  150. 
D)  175.

Question 4

Suppose Joe Rich owns his own company and does not pay himself a salary.This means the salary he could have earned in alternative employment is considered an implicit cost for the firm.

Accepted Answer

A) True 
 B)False

Question 5

If a firm increases output and its average total cost rises,then the firm is experiencing economies of scale.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 6-12 Cost schedule for producing pizza
  
-By filling in the blanks in Exhibit 6-12,the AVC of 3 pizzas is shown to be equal to:

Accepted Answer

A)  $10. 
B)  $13.33. 
C)  $9. 
D)  $22.33. 
E)  $40. 
A)  $10. 
B)  $13.33. 
C)  $9. 
D)  $22.33. 
E)  $40.

Question 7

Economic profit equals accounting profit minus implicit costs.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 6-6 Total cost curves
  
-In Exhibit 6-6,the total fixed cost is:

Accepted Answer

A)  0. 
B)  1,000. 
C)  3,000. 
D)  5,000. 
E)  6,000. 
A)  0. 
B)  1,000. 
C)  3,000. 
D)  5,000. 
E)  6,000.

Question 9

Exhibit 6-12 Cost schedule for producing pizza
  
-By filling in the blanks in Exhibit 6-12,the ATC of 4 pizzas is shown to be equal to:

Accepted Answer

A)  $10. 
B)  $9.50. 
C)  $19.50. 
D)  $40. 
E)  $78. 
A)  $10. 
B)  $9.50. 
C)  $19.50. 
D)  $40. 
E)  $78.

Question 10

Which of the following best describes the law of diminishing returns?

Accepted Answer

A)  The principle that beyond some point the marginal product decreases as additional units of a variable factor (ex: labor) are added to a fixed factor (ex: a restaurant kitchen). 
B)  The concept that as a person consumes more and more of a good, such as pizza slices, that the marginal utility from each additional slice will decline. 
C)  The empirical fact that the profitability of firms declines in the long run due to increasing competition. 
D)  None of the above. 
A)  The principle that beyond some point the marginal product decreases as additional units of a variable factor (ex: labor) are added to a fixed factor (ex: a restaurant kitchen). 
B)  The concept that as a person consumes more and more of a good, such as pizza slices, that the marginal utility from each additional slice will decline. 
C)  The empirical fact that the profitability of firms declines in the long run due to increasing competition. 
D)  None of the above.

Question 11

Which of the following would be considered an implicit cost?

Accepted Answer

A)  Health insurance of employees paid for by the firm 
B)  The water bill of the firm 
C)  The salaries paid to the managers of the firm 
D)  Foregone rent on assets owned by the firm 
A)  Health insurance of employees paid for by the firm 
B)  The water bill of the firm 
C)  The salaries paid to the managers of the firm 
D)  Foregone rent on assets owned by the firm

Question 12

Exhibit 6-6 Total cost curves
  
-In Exhibit 6-6,the total cost of producing 6,000 units of output is:

Accepted Answer

A)  1,000. 
B)  3,000. 
C)  5,000. 
D)  6,000. 
E)  8,000. 
A)  1,000. 
B)  3,000. 
C)  5,000. 
D)  6,000. 
E)  8,000.

Question 13

Exhibit 6-8 Costs schedules for producing pizza
  
-By filling in the blanks in Exhibit 6-8,the total cost of producing 3 pizzas is shown to be equal to:

Accepted Answer

A)  $100. 
B)  $105. 
C)  $113. 
D)  $123. 
E)  $23. 
A)  $100. 
B)  $105. 
C)  $113. 
D)  $123. 
E)  $23.

Question 14

Exhibit 6-12 Cost schedule for producing pizza
  
-By filling in the blanks in Exhibit 6-12,the marginal cost of the fourth pizza is shown to be equal to:

Accepted Answer

A)  $10. 
B)  $11. 
C)  $12. 
D)  $13. 
E)  $14. 
A)  $10. 
B)  $11. 
C)  $12. 
D)  $13. 
E)  $14.

Question 15

Exhibit 6-7 Cost schedule for a firm
  
-In Exhibit 6-7,by filling in the blanks it can be determined that the fixed costs are

Accepted Answer

A)  0. 
B)  200. 
C)  900. 
D)  1,000. 
E)  3,000. 
A)  0. 
B)  200. 
C)  900. 
D)  1,000. 
E)  3,000.

Question 16

Exhibit 6-2 Cost schedule for pizza production
  
-Exhibit 6-2 shows the labor,energy,and materials cost of making various quantities of pizzas.The table shows that the materials cost of making pizzas will:

Accepted Answer

A)  increase at a decreasing rate. 
B)  decrease at a decreasing rate. 
C)  decrease at an increasing rate. 
D)  increase at an increasing rate. 
E)  increase at a constant rate. 
A)  increase at a decreasing rate. 
B)  decrease at a decreasing rate. 
C)  decrease at an increasing rate. 
D)  increase at an increasing rate. 
E)  increase at a constant rate.

Question 17

A firm has $200 million in total revenue and explicit costs of $190 million.Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year.The firm's economic profit is:

Accepted Answer

A)  $400 million. 
B)  $100 million. 
C)  $80 million. 
D)  zero. 
A)  $400 million. 
B)  $100 million. 
C)  $80 million. 
D)  zero.

Question 18

If both the marginal cost and the average variable cost curves are U-shaped.At the minimum point on the average variable cost curve,the marginal cost must be:

Accepted Answer

A)  greater than the average variable cost. 
B)  less than the average variable cost. 
C)  equal to the average variable cost. 
D)  at its minimum. 
A)  greater than the average variable cost. 
B)  less than the average variable cost. 
C)  equal to the average variable cost. 
D)  at its minimum.

Question 19

Long-run economies of scale exist over the range of output for which the long-run average cost curve is:

Accepted Answer

A)  constant. 
B)  falling. 
C)  rising. 
D)  does not exist. 
A)  constant. 
B)  falling. 
C)  rising. 
D)  does not exist.

Question 20

Exhibit 6-8 Costs schedules for producing pizza
  
-By filling in the blanks in Exhibit 6-8,the total cost of producing 5 pizzas is shown to be equal to:

Accepted Answer

A)  $100. 
B)  $105. 
C)  $113. 
D)  $123. 
E)  $160. 
A)  $100. 
B)  $105. 
C)  $113. 
D)  $123. 
E)  $160.

Exam 6: Production Costs

When costs that vary with the level of output are divided by the output,you have calculated:

Payments to nonowners of a firm are called:

Exhibit 6-3 A marginal product curve -As shown in Exhibit 6-3,the marginal product of labor for the last worker hired when 5 workers are employed per day is:

Suppose Joe Rich owns his own company and does not pay himself a salary.This means the salary he could have earned in alternative employment is considered an implicit cost for the firm.

If a firm increases output and its average total cost rises,then the firm is experiencing economies of scale.

Exhibit 6-12 Cost schedule for producing pizza -By filling in the blanks in Exhibit 6-12,the AVC of 3 pizzas is shown to be equal to:

Economic profit equals accounting profit minus implicit costs.

Exhibit 6-6 Total cost curves -In Exhibit 6-6,the total fixed cost is:

Exhibit 6-12 Cost schedule for producing pizza -By filling in the blanks in Exhibit 6-12,the ATC of 4 pizzas is shown to be equal to:

Which of the following best describes the law of diminishing returns?

Which of the following would be considered an implicit cost?

Exhibit 6-6 Total cost curves -In Exhibit 6-6,the total cost of producing 6,000 units of output is:

Exhibit 6-8 Costs schedules for producing pizza -By filling in the blanks in Exhibit 6-8,the total cost of producing 3 pizzas is shown to be equal to:

Exhibit 6-12 Cost schedule for producing pizza -By filling in the blanks in Exhibit 6-12,the marginal cost of the fourth pizza is shown to be equal to:

Exhibit 6-7 Cost schedule for a firm -In Exhibit 6-7,by filling in the blanks it can be determined that the fixed costs are

Exhibit 6-2 Cost schedule for pizza production -Exhibit 6-2 shows the labor,energy,and materials cost of making various quantities of pizzas.The table shows that the materials cost of making pizzas will:

A firm has $200 million in total revenue and explicit costs of $190 million.Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year.The firm's economic profit is:

If both the marginal cost and the average variable cost curves are U-shaped.At the minimum point on the average variable cost curve,the marginal cost must be:

Long-run economies of scale exist over the range of output for which the long-run average cost curve is:

Exhibit 6-8 Costs schedules for producing pizza -By filling in the blanks in Exhibit 6-8,the total cost of producing 5 pizzas is shown to be equal to:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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