Question 1

Suppose that for 20 bicycles,the total fixed cost is $100 and total variable cost is $300.Then the average fixed cost and average variable cost are:

Accepted Answer

A) $5 and $10 respectively. 
B) $5 and $15 respectively. 
C) $10 and $15 respectively. 
D) $15 and $10 respectively. 
E) $10 and $5 respectively. 
A) $5 and $10 respectively. 
B) $5 and $15 respectively. 
C) $10 and $15 respectively. 
D) $15 and $10 respectively. 
E) $10 and $5 respectively.

Question 2

In the long run,the producer can change the entire plant size to produce a certain level of the output.

Accepted Answer

A) True 
 B)False

Question 3

When a firm grows to such an extent that it is unable to coordinate between its employees properly it is likely to experience economies of scale.

Accepted Answer

A) True 
 B)False

Question 4

A firm gets less efficient as it gets bigger,if it is experiencing:

Accepted Answer

A) economies of scale. 
B) constant returns to scale. 
C) increasing returns to factors. 
D) diseconomies of scale. 
E) a period of post war recovery. 
A) economies of scale. 
B) constant returns to scale. 
C) increasing returns to factors. 
D) diseconomies of scale. 
E) a period of post war recovery.

Question 5

As the confectionary,Mrs.Fields' Cookies,gained popularity in California and decided to expand its operations to Utah,it was able to achieve economies of scale.This means that:

Accepted Answer

A) property taxes were lower in its new location in Utah. 
B) transport and communication systems were more developed in Utah. 
C) wages were higher in Utah compared to California. 
D) expansion of output and firm size led to specialization among the workers. 
E) government policies were more favorable in Utah. 
A) property taxes were lower in its new location in Utah. 
B) transport and communication systems were more developed in Utah. 
C) wages were higher in Utah compared to California. 
D) expansion of output and firm size led to specialization among the workers. 
E) government policies were more favorable in Utah.

Question 6

In the short run when output is zero,total cost is:

Accepted Answer

A) equal to total variable cost. 
B) greater than total fixed cost. 
C) equal to total fixed cost. 
D) less than total fixed cost. 
E) less than total variable cost. 
A) equal to total variable cost. 
B) greater than total fixed cost. 
C) equal to total fixed cost. 
D) less than total fixed cost. 
E) less than total variable cost.

Question 7

According to economic theory,the difference between the long run and the short run is:

Accepted Answer

A) about two months. 
B) about two years. 
C) not relevant for executive decision makers. 
D) strictly theoretical so that in practice there is no difference between the short run and the long run. 
E) the ability for a firm to vary all resources. 
A) about two months. 
B) about two years. 
C) not relevant for executive decision makers. 
D) strictly theoretical so that in practice there is no difference between the short run and the long run. 
E) the ability for a firm to vary all resources.

Question 8

The term minimum efficient scale means:

Accepted Answer

A) the output corresponding to the minimum point of the short run average total cost curve. 
B) the total of all efficient points along the long-run average-cost curve. 
C) diseconomies of scale. 
D) the minimum point of the long-run average-cost curve,or the output level at which the cost per unit of output is the lowest. 
E) the maximum point of the long-run average-cost curve,or the output level at which the cost per unit of output is the highest. 
A) the output corresponding to the minimum point of the short run average total cost curve. 
B) the total of all efficient points along the long-run average-cost curve. 
C) diseconomies of scale. 
D) the minimum point of the long-run average-cost curve,or the output level at which the cost per unit of output is the lowest. 
E) the maximum point of the long-run average-cost curve,or the output level at which the cost per unit of output is the highest.

Question 9

Fixed costs are costs paid for:

Accepted Answer

A) plant,equipment,and land that cannot be moved. 
B) obsolete plant and equipment not used anymore. 
C) plant and equipment in the long run. 
D) hiring temporary workers. 
E) resources that do not change with changes in output. 
A) plant,equipment,and land that cannot be moved. 
B) obsolete plant and equipment not used anymore. 
C) plant and equipment in the long run. 
D) hiring temporary workers. 
E) resources that do not change with changes in output.

Question 10

Marginal cost equals:

Accepted Answer

A) total cost divided by total quantity. 
B) the slope of the demand curve under perfect competition. 
C) the slope of the total product curve when the latter is at its maximum. 
D) the change in total cost divided by the change in total output. 
E) the slope of the supply curve. 
A) total cost divided by total quantity. 
B) the slope of the demand curve under perfect competition. 
C) the slope of the total product curve when the latter is at its maximum. 
D) the change in total cost divided by the change in total output. 
E) the slope of the supply curve.

Question 11

If a firm experiences economies of scale,

Accepted Answer

A) it moves up along the long run average total cost curve. 
B) expansion of output becomes more expensive for the firm. 
C) the firm can reduce its per unit cost by producing less. 
D) the firm must shut down in the long run. 
E) the firm can reduce its per unit cost by expanding production. 
A) it moves up along the long run average total cost curve. 
B) expansion of output becomes more expensive for the firm. 
C) the firm can reduce its per unit cost by producing less. 
D) the firm must shut down in the long run. 
E) the firm can reduce its per unit cost by expanding production.

Question 12

Which of the following may lead to diseconomies of scale?

Accepted Answer

A) Specialization on the basis of comparative advantage 
B) Lack of coordination among the division heads 
C) Using larger and more efficient machineries 
D) Division of labor on the basis of capability 
E) Specialization of marketing,pricing,and research 
A) Specialization on the basis of comparative advantage 
B) Lack of coordination among the division heads 
C) Using larger and more efficient machineries 
D) Division of labor on the basis of capability 
E) Specialization of marketing,pricing,and research

Question 13

The long-run average-total-cost curve is U-shaped because:

Accepted Answer

A) a firm initially experiences economies of scale and then diseconomies of scale. 
B) the law of diminishing returns to a factor sets in beyond a certain level of output. 
C) a firm initially experiences diseconomies of scale and then economies of scale. 
D) division of labor keeps labor productivity constant irrespective of expansion or contraction in production. 
E) efficiency of capital increases over a period of time. 
A) a firm initially experiences economies of scale and then diseconomies of scale. 
B) the law of diminishing returns to a factor sets in beyond a certain level of output. 
C) a firm initially experiences diseconomies of scale and then economies of scale. 
D) division of labor keeps labor productivity constant irrespective of expansion or contraction in production. 
E) efficiency of capital increases over a period of time.

Question 14

After hiring a new employee,a manager finds that the total output has increased.When the manager hires another employee however,he realizes that although the total production has increased,the increment is less than the previous case.This is the result of:

Accepted Answer

A) diseconomies of scale. 
B) a general economic downturn. 
C) diminishing marginal returns. 
D) the lack of skills of the two employees. 
E) constant returns to scale. 
A) diseconomies of scale. 
B) a general economic downturn. 
C) diminishing marginal returns. 
D) the lack of skills of the two employees. 
E) constant returns to scale.

Question 15

The long run is referred to as a planning horizon because:

Accepted Answer

A) the firm has committed to a fixed quantity of at least one resource and the other resources are variable. 
B) the manager has selected the size of the firm that appears to be the least profitable and does not have the option of selecting any other plant size. 
C) the firm has not committed to a fixed quantity of any resource and has all options available to it. 
D) the manager has selected a scale of production. 
E) the firm is operating along a specific average-cost curve. 
A) the firm has committed to a fixed quantity of at least one resource and the other resources are variable. 
B) the manager has selected the size of the firm that appears to be the least profitable and does not have the option of selecting any other plant size. 
C) the firm has not committed to a fixed quantity of any resource and has all options available to it. 
D) the manager has selected a scale of production. 
E) the firm is operating along a specific average-cost curve.

Question 16

As the output produced by a firm increases,the average fixed cost:

Accepted Answer

A) continues to decline. 
B) initially increases,and then declines. 
C) quickly drops to zero. 
D) becomes constant. 
E) declines and finally becomes negative. 
A) continues to decline. 
B) initially increases,and then declines. 
C) quickly drops to zero. 
D) becomes constant. 
E) declines and finally becomes negative.

Question 17

The table below shows the total cost of producing different units of a commodity. Table 7.2
  
-Refer to Table 7.2.If the production of 2 extra units (units 11 and 12) increases total cost by $162,then:

Accepted Answer

A) the marginal cost of the twelfth unit will be $162. 
B) the total cost of producing 12 units will be $894. 
C) the average variable cost of producing 11 units is $732. 
D) the average total cost of producing 12 units is $61. 
E) the thirteenth unit will have to go up in price. 
A) the marginal cost of the twelfth unit will be $162. 
B) the total cost of producing 12 units will be $894. 
C) the average variable cost of producing 11 units is $732. 
D) the average total cost of producing 12 units is $61. 
E) the thirteenth unit will have to go up in price.

Question 18

The table given below shows the total fixed and variable costs of a firm. Table 7.3
 
- Refer to Table 7.3.At what level of output does the average total cost starts increasing?

Accepted Answer

A) 1 
B) 6 
C) 5 
D) 7 
E) 4 
A) 1 
B) 6 
C) 5 
D) 7 
E) 4

Question 19

The minimum efficient scale is the level of output where the short-run average-total-cost curve reaches its minimum point.

Accepted Answer

A) True 
 B)False

Question 20

Diminishing marginal returns means that as you combine more units of a variable resource with a set of fixed resources:

Accepted Answer

A) the average physical product increases at an increasing rate. 
B) the marginal physical product decreases. 
C) the total production decreases. 
D) the marginal physical product becomes negative. 
E) the marginal physical product increases at a decreasing rate. 
A) the average physical product increases at an increasing rate. 
B) the marginal physical product decreases. 
C) the total production decreases. 
D) the marginal physical product becomes negative. 
E) the marginal physical product increases at a decreasing rate.

Exam 7: Supply: The Costs of Doing Business

Suppose that for 20 bicycles,the total fixed cost is $100 and total variable cost is $300.Then the average fixed cost and average variable cost are:

In the long run,the producer can change the entire plant size to produce a certain level of the output.

When a firm grows to such an extent that it is unable to coordinate between its employees properly it is likely to experience economies of scale.

A firm gets less efficient as it gets bigger,if it is experiencing:

As the confectionary,Mrs.Fields' Cookies,gained popularity in California and decided to expand its operations to Utah,it was able to achieve economies of scale.This means that:

In the short run when output is zero,total cost is:

According to economic theory,the difference between the long run and the short run is:

The term minimum efficient scale means:

Fixed costs are costs paid for:

Marginal cost equals:

If a firm experiences economies of scale,

Which of the following may lead to diseconomies of scale?

The long-run average-total-cost curve is U-shaped because:

After hiring a new employee,a manager finds that the total output has increased.When the manager hires another employee however,he realizes that although the total production has increased,the increment is less than the previous case.This is the result of:

The long run is referred to as a planning horizon because:

As the output produced by a firm increases,the average fixed cost:

The table below shows the total cost of producing different units of a commodity. Table 7.2 -Refer to Table 7.2.If the production of 2 extra units (units 11 and 12) increases total cost by $162,then:

The table given below shows the total fixed and variable costs of a firm. Table 7.3 - Refer to Table 7.3.At what level of output does the average total cost starts increasing?

The minimum efficient scale is the level of output where the short-run average-total-cost curve reaches its minimum point.

Diminishing marginal returns means that as you combine more units of a variable resource with a set of fixed resources:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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