Question 1

Long-run cost curves are U-shaped because

Accepted Answer

A)  of the law of demand. 
B)  of the law of diminishing returns. 
C)  of economies and diseconomies of scale. 
D)  of the law of supply. 
A)  of the law of demand. 
B)  of the law of diminishing returns. 
C)  of economies and diseconomies of scale. 
D)  of the law of supply.

Question 2

When the marginal product of labor rises

Accepted Answer

A)  the marginal cost of production will exceed the average total cost. 
B)  the marginal cost of production also rises. 
C)  the marginal cost of production falls. 
D)  the average total cost of production also rises. 
A)  the marginal cost of production will exceed the average total cost. 
B)  the marginal cost of production also rises. 
C)  the marginal cost of production falls. 
D)  the average total cost of production also rises.

Question 3

Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory.In the following graph,the relationship between costs and output for the smaller factory is represented by the curve ATC₁,and the relationship between costs and output for the larger factory is represented by the curve ATC₂.
   
a.If Argyle expects to produce 3,600 sweaters per month,should he build a smaller factory or a larger factory? Briefly explain?
b.If Argyle expects to produce 5,000 sweaters per month,should he build a smaller factory or a larger factory? Briefly explain.
c.If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6,500 sweaters per week,why isn't it also lower when Argyle produces 4,000 sweaters per week?

Accepted Answer

a∙Argyle's costs will be lower with a sm

Question 4

As output increases

Accepted Answer

A)  average variable cost becomes smaller and smaller. 
B)  the difference between average total cost and average variable cost decreases. 
C)  marginal cost increases continuously. 
D)  the difference between average total cost and average variable cost becomes greater and greater. 
A)  average variable cost becomes smaller and smaller. 
B)  the difference between average total cost and average variable cost decreases. 
C)  marginal cost increases continuously. 
D)  the difference between average total cost and average variable cost becomes greater and greater.

Question 5

Which of the following can a firm do in the long run but not in the short run?

Accepted Answer

A)  decrease the size of its physical plant 
B)  reduce its rate of output by laying off workers 
C)  increase its variable costs 
D)  increase its use of raw materials 
A)  decrease the size of its physical plant 
B)  reduce its rate of output by laying off workers 
C)  increase its variable costs 
D)  increase its use of raw materials

Question 6

Figure 8-1
  
-Refer to Figure 8-1.If the marginal product of labor curve was plotted on this figure,with marginal product on the vertical axis,the marginal product of labor curve would

Accepted Answer

A)  never intersect the horizontal axis. 
B)  intersect the horizontal axis at a point between the 5th and 6th unit of labor. 
C)  intersect the horizontal axis at a point between the 6th and 7th unit of labor. 
D)  intersect the horizontal axis at a point somewhere beyond the 8th unit of labor. 
A)  never intersect the horizontal axis. 
B)  intersect the horizontal axis at a point between the 5th and 6th unit of labor. 
C)  intersect the horizontal axis at a point between the 6th and 7th unit of labor. 
D)  intersect the horizontal axis at a point somewhere beyond the 8th unit of labor.

Question 7

If the marginal cost curve is below the average variable cost curve,then

Accepted Answer

A)  average variable cost is increasing. 
B)  average variable cost is decreasing. 
C)  marginal cost must be decreasing. 
D)  average variable cost could either be increasing or decreasing. 
A)  average variable cost is increasing. 
B)  average variable cost is decreasing. 
C)  marginal cost must be decreasing. 
D)  average variable cost could either be increasing or decreasing.

Question 8

Red Stone Creamery currently hires 5 workers.When it added a 6th worker,its output actually fell.Which of the following statements is true?

Accepted Answer

A)  The marginal product of the sixth worker must be negative. 
B)  The average product of the sixth worker is negative. 
C)  The sixth worker is not as skilled as the fifth worker. 
D)  The total product becomes negative. 
A)  The marginal product of the sixth worker must be negative. 
B)  The average product of the sixth worker is negative. 
C)  The sixth worker is not as skilled as the fifth worker. 
D)  The total product becomes negative.

Question 9

Damian owns a tattoo parlor and has hired three tattoo artists to work for him.The marginal product of labor is 8 for the first artist,12 for the second artist,and 7 for the third artist.What is Damian's average product of labor for these three tattoo artists?

Accepted Answer

The average product of labor i

Question 10

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business.To save money she operates her business out of a small building she owns which,until she started her own business,she had rented out for $10,000 per year.She also invested her $20,000 savings (which earned a market interest rate of 5% per year)in her business.You are given the following information about the first year of her operations.
Total revenue $120,000
Cost of labor 40,000
Cost of materials 15,000
Equipment rental 5,000
a.Calculate her economic costs for the first year.
b.Calculate her accounting costs for the first year.
c.Calculate her implicit costs for the first year.
d.Sally tells you that she would really like to move to a location closer to town but she decided against it because "right now I don't pay any rent and it will cost me $10,000 a year to rent near town." Do you agree with her reasoning?

Accepted Answer

a∙$121,000 = 40,000 (labor)+ 15,000 (mat

Question 11

Table 8-1
 $\begin{array}{|c|c|}
\hline \begin{array}{c}
\text { Number of } \
\text { Workers }
\end{array} & \begin{array}{c}
\text { Mushrooms per } \
\text { Day (pounds) }
\end{array} \
\hline 1 & 12 \
\hline 2 & 30 \
\hline 3 & 45 \
\hline 4 & 50 \
\hline 5 & 54 \
\hline 6 & 56 \
\hline
\end{array}$ Table 8-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May.
-Refer to Table 8-1.What is the average product of labor when the farm hires 5 workers?

Accepted Answer

A)  4 pounds 
B)  10.8 pounds 
C)  38.2 pounds 
D)  54 pounds 
A)  4 pounds 
B)  10.8 pounds 
C)  38.2 pounds 
D)  54 pounds

Question 12

Figure 8-6
   Figure 8-6 contains information about the short run cost structure of a firm.
-Refer to Figure 8-6.In the figure above,which letter represents the marginal cost curve?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 13

If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50,this is evidence of

Accepted Answer

A)  diminishing returns. 
B)  economies of scale. 
C)  diseconomies of scale. 
D)  the law of supply. 
A)  diminishing returns. 
B)  economies of scale. 
C)  diseconomies of scale. 
D)  the law of supply.

Question 14

A firm's cost of production is determined by all of the following except

Accepted Answer

A)  the technology used to produce its output. 
B)  the productivity of its workers. 
C)  the cost of raw material used in production. 
D)  the amount of corporate taxes it must pay on its profit. 
A)  the technology used to produce its output. 
B)  the productivity of its workers. 
C)  the cost of raw material used in production. 
D)  the amount of corporate taxes it must pay on its profit.

Question 15

Table 8-4
 $\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Labor } \
\text { (hours) }
\end{array} & \begin{array}{c}
\text { Quantity of } \
\text { Fish (pounds) }
\end{array} & \begin{array}{c}
\text { Marginal Product } \
\text { (pounds) }
\end{array} \
\hline 1 & 10 & \
\hline 2 & 18 & \
\hline 3 & 24 & \
\hline 4 & 28 & \
\hline 5 & 30 & \
\hline 6 & 32 & \
\hline
\end{array}$
-Refer to Table 8-4.The table above shows the following relationship between hours spent fishing and the quantity of fish caught for Juan,a commercial fisherman.
a.Complete the Marginal Product column in Table 8-4.
b.Characterize the production function,i.e.does the production function display increasing marginal returns,diminishing marginal returns,etc.
c.Using the data above,graph Juan's marginal product curve.Be sure to label the horizontal and vertical axes.Is your graph consistent with your answer to part (b)? Explain.
d.Juan uses the following inputs for fishing - a small wooden boat (B),a fishing pole (P)and of course,his labor (L).Treating the boat and the fishing pole as fixed inputs and using the data above,graph Juan's Total Product of Labor curve.Be sure to label the horizontal and vertical axes.
e.The opportunity cost of Juan's time is $8 per hour.If Juan receives $2 per pound for his fish,what is the optimal number of hours he should spend fishing? Explain how you arrived at your answer.Hint: Recall marginal benefit and marginal cost analysis.

Accepted Answer

a.
b.The production displays diminishing

Question 16

If an airport decides to expand by building an additional passenger terminal,and in doing so it lowers its average cost per airplane landing,it was previously operating at

Accepted Answer

A)  minimum efficient scale. 
B)  more than minimum efficient scale. 
C)  less than minimum efficient scale. 
D)  minimum capacity. 
A)  minimum efficient scale. 
B)  more than minimum efficient scale. 
C)  less than minimum efficient scale. 
D)  minimum capacity.

Question 17

When the average total cost is $16 and the total cost is $800,then the number of units the firm is producing is

Accepted Answer

A)  impossible to determine with the information given. 
B)  12,800. 
C)  784. 
D)  50. 
A)  impossible to determine with the information given. 
B)  12,800. 
C)  784. 
D)  50.

Question 18

Use the general relationship between marginal and average values to explain why a marginal cost curve must intersect an average total cost curve and an average variable cost curve at their minimum points.

Accepted Answer

The relationship between marginal and av

Question 19

The minimum efficient scale is

Accepted Answer

A)  the level of output where diminishing returns have not set in yet. 
B)  the plant size that yields the most profit. 
C)  the smallest level of operation where long-run average costs are lowest. 
D)  the smallest output level where the firm finally reaches productive efficiency. 
A)  the level of output where diminishing returns have not set in yet. 
B)  the plant size that yields the most profit. 
C)  the smallest level of operation where long-run average costs are lowest. 
D)  the smallest output level where the firm finally reaches productive efficiency.

Question 20

Which of the following is a fixed cost?

Accepted Answer

A)  payment to hire a security worker to guard the gate to the factory around the clock 
B)  wages to hire assembly line workers 
C)  payments to an electric utility 
D)  costs of raw materials 
A)  payment to hire a security worker to guard the gate to the factory around the clock 
B)  wages to hire assembly line workers 
C)  payments to an electric utility 
D)  costs of raw materials

Long-run cost curves are U-shaped because

When the marginal product of labor rises

As output increases

Which of the following can a firm do in the long run but not in the short run?

Figure 8-1 -Refer to Figure 8-1.If the marginal product of labor curve was plotted on this figure,with marginal product on the vertical axis,the marginal product of labor curve would

If the marginal cost curve is below the average variable cost curve,then

Red Stone Creamery currently hires 5 workers.When it added a 6th worker,its output actually fell.Which of the following statements is true?

Damian owns a tattoo parlor and has hired three tattoo artists to work for him.The marginal product of labor is 8 for the first artist,12 for the second artist,and 7 for the third artist.What is Damian's average product of labor for these three tattoo artists?

Table 8-1 Number of Workers Mushrooms per Day (pounds) 1 12 2 30 3 45 4 50 5 54 6 56 Table 8-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May. -Refer to Table 8-1.What is the average product of labor when the farm hires 5 workers?

Figure 8-6 Figure 8-6 contains information about the short run cost structure of a firm. -Refer to Figure 8-6.In the figure above,which letter represents the marginal cost curve?

If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50,this is evidence of

A firm's cost of production is determined by all of the following except

If an airport decides to expand by building an additional passenger terminal,and in doing so it lowers its average cost per airplane landing,it was previously operating at

When the average total cost is $16 and the total cost is $800,then the number of units the firm is producing is

Use the general relationship between marginal and average values to explain why a marginal cost curve must intersect an average total cost curve and an average variable cost curve at their minimum points.

The minimum efficient scale is

Which of the following is a fixed cost?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Exam 8: Technology,Production,and Costs

Long-run cost curves are U-shaped because

When the marginal product of labor rises

As output increases

Which of the following can a firm do in the long run but not in the short run?

Figure 8-1 -Refer to Figure 8-1.If the marginal product of labor curve was plotted on this figure,with marginal product on the vertical axis,the marginal product of labor curve would

If the marginal cost curve is below the average variable cost curve,then

Red Stone Creamery currently hires 5 workers.When it added a 6th worker,its output actually fell.Which of the following statements is true?

Damian owns a tattoo parlor and has hired three tattoo artists to work for him.The marginal product of labor is 8 for the first artist,12 for the second artist,and 7 for the third artist.What is Damian's average product of labor for these three tattoo artists?

Table 8-1 Number of Workers Mushrooms per Day (pounds) 1 12 2 30 3 45 4 50 5 54 6 56 Table 8-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May. -Refer to Table 8-1.What is the average product of labor when the farm hires 5 workers?

Figure 8-6 Figure 8-6 contains information about the short run cost structure of a firm. -Refer to Figure 8-6.In the figure above,which letter represents the marginal cost curve?

If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50,this is evidence of

A firm's cost of production is determined by all of the following except

If an airport decides to expand by building an additional passenger terminal,and in doing so it lowers its average cost per airplane landing,it was previously operating at

When the average total cost is $16 and the total cost is $800,then the number of units the firm is producing is

Use the general relationship between marginal and average values to explain why a marginal cost curve must intersect an average total cost curve and an average variable cost curve at their minimum points.

The minimum efficient scale is

Which of the following is a fixed cost?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters