Question 1

The marginal cost curve bisects the average total cost curve at the minimum point of the average total cost curve.

Accepted Answer

A) True 
 B)False

Question 2

When economists speak of a firm's costs, they are usually excluding the opportunity costs.

Accepted Answer

A) True 
 B)False

Question 3

The average total cost curve is unaffected by diminishing marginal product.

Accepted Answer

A) True 
 B)False

Question 4

Several related measures of cost can be derived from a firm's total cost.

Accepted Answer

A) True 
 B)False

Question 5

Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.

Accepted Answer

A) True 
 B)False

Question 6

If marginal cost is below average total cost, then average total cost:

Accepted Answer

A)  is falling 
B)  is rising 
C)  is constant 
D)  may rise or fall depending on the size of fixed costs 
A)  is falling 
B)  is rising 
C)  is constant 
D)  may rise or fall depending on the size of fixed costs

Question 7

Graph 13-2
   This graph depicts a total cost function for a firm that produces cookies. Use the graph to answer the following question(s).
-Refer to Graph 13-2. Which of the statements below is most consistent with the shape of the total cost curve?

Accepted Answer

A)  producing additional cookies is equally costly, regardless of how many cookies are already being produced 
B)  producing additional cookies becomes increasingly costly only when the number of cookies already being produced is large 
C)  producing an additional cookie is always more costly than producing the previous cookie 
D)  total production of cookies decreases with additional units of input 
A)  producing additional cookies is equally costly, regardless of how many cookies are already being produced 
B)  producing additional cookies becomes increasingly costly only when the number of cookies already being produced is large 
C)  producing an additional cookie is always more costly than producing the previous cookie 
D)  total production of cookies decreases with additional units of input

Question 8

The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.

Accepted Answer

A) True 
 B)False

Question 9

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory.
  
-Refer to Table 13-1. The average fixed cost of producing five kayaks is:

Accepted Answer

A)  $8 
B)  $9 
C)  $12 
D)  none of the above 
A)  $8 
B)  $9 
C)  $12 
D)  none of the above

Question 10

Economies of scale occur when:

Accepted Answer

A)  long-run average total costs rise as output increases 
B)  average fixed costs are falling 
C)  long-run average total costs fall as output increases 
D)  average fixed costs are constant 
A)  long-run average total costs rise as output increases 
B)  average fixed costs are falling 
C)  long-run average total costs fall as output increases 
D)  average fixed costs are constant

Question 11

The relationship between the quantity of inputs and quantity of output is called the production function.

Accepted Answer

A) True 
 B)False

Question 12

Table 13-3
Consider the following firm which makes high-performance racing bicycles. All costs are given in dollars. Output is shown on a monthly basis. The firm's fixed costs include a rent of $800 and a lease cost of $400 per month.
  
-Refer to Table 13-3. At what level of output will average variable cost equal average total cost?

Accepted Answer

A)  when marginal cost equals average variable cost 
B)  when marginal cost equals average total cost 
C)  there is no level of output where this occurs, as long as fixed costs are positive 
D)  this holds true for all levels of output in which average variable cost is falling 
A)  when marginal cost equals average variable cost 
B)  when marginal cost equals average total cost 
C)  there is no level of output where this occurs, as long as fixed costs are positive 
D)  this holds true for all levels of output in which average variable cost is falling

Question 13

Economists normally assume that the goal of a firm is to maximise revenue.

Accepted Answer

A) True 
 B)False

Question 14

If a firm is operating at an efficient scale, average total cost must:

Accepted Answer

A)  rise as output is increased 
B)  fall as output is increase 
C)  be at its maximum 
D)  none of the above will be true 
A)  rise as output is increased 
B)  fall as output is increase 
C)  be at its maximum 
D)  none of the above will be true

Question 15

Table 13-2
Adrienne's Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business. Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory. She can hire workers for $275 a week. Costs are in dollars per week.
  
-Refer to Table 13-2. Adrienne has received an order for 3000 boxes of chocolates for next week. If she expects that the trend in the marginal product of labour will continue in the same direction, it is most likely that her best decision will be to:

Accepted Answer

A)  hire about 12 new workers and hope she can satisfy the order 
B)  commit to meeting the order and then take three weeks to complete the job 
C)  not commit to meeting the order until she can move to a larger room and hire more workers to box the chocolates 
D)  close her business until she is able to hire more productive workers 
A)  hire about 12 new workers and hope she can satisfy the order 
B)  commit to meeting the order and then take three weeks to complete the job 
C)  not commit to meeting the order until she can move to a larger room and hire more workers to box the chocolates 
D)  close her business until she is able to hire more productive workers

Question 16

Suppose a firm produced 500 units of output but sold only 400 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 400 units sold were sold for a price of $80. The total revenue of this firm would be:

Accepted Answer

A)  $50 000 
B)  $40 000 
C)  $32 000 
D)  -$8 000 
A)  $50 000 
B)  $40 000 
C)  $32 000 
D)  -$8 000

Question 17

Those things that must be forgone to acquire a good are called:

Accepted Answer

A)  competitors 
B)  substitutes 
C)  opportunity costs 
D)  explicit costs 
A)  competitors 
B)  substitutes 
C)  opportunity costs 
D)  explicit costs

Question 18

A firm's total costs divided by the quantity produced is the:

Accepted Answer

A)  marginal product 
B)  marginal cost 
C)  marginal fixed cost 
D)  average total cost 
A)  marginal product 
B)  marginal cost 
C)  marginal fixed cost 
D)  average total cost

Question 19

Diminishing marginal product of labour is NOT likely to be observed when:

Accepted Answer

A)  experienced workers in labour teams will not share their skills with others 
B)  there are enough personal computers to allocate them to new staff in an office 
C)  there are shortages of skilled workers in the forestry sector 
D)  new workers have to use the oldest technology in a plant 
A)  experienced workers in labour teams will not share their skills with others 
B)  there are enough personal computers to allocate them to new staff in an office 
C)  there are shortages of skilled workers in the forestry sector 
D)  new workers have to use the oldest technology in a plant

Question 20

Suppose that as a firm expands and notices that its long-run average total costs are declining. The most likely explanation for this is economies of scale.

Accepted Answer

A) True 
 B)False

Exam 13: The Costs of Production

The marginal cost curve bisects the average total cost curve at the minimum point of the average total cost curve.

When economists speak of a firm's costs, they are usually excluding the opportunity costs.

The average total cost curve is unaffected by diminishing marginal product.

Several related measures of cost can be derived from a firm's total cost.

Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.

If marginal cost is below average total cost, then average total cost:

Graph 13-2 This graph depicts a total cost function for a firm that produces cookies. Use the graph to answer the following question(s). -Refer to Graph 13-2. Which of the statements below is most consistent with the shape of the total cost curve?

The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1. The average fixed cost of producing five kayaks is:

Economies of scale occur when:

The relationship between the quantity of inputs and quantity of output is called the production function.

Economists normally assume that the goal of a firm is to maximise revenue.

If a firm is operating at an efficient scale, average total cost must:

Suppose a firm produced 500 units of output but sold only 400 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 400 units sold were sold for a price of $80. The total revenue of this firm would be:

Those things that must be forgone to acquire a good are called:

A firm's total costs divided by the quantity produced is the:

Diminishing marginal product of labour is NOT likely to be observed when:

Suppose that as a firm expands and notices that its long-run average total costs are declining. The most likely explanation for this is economies of scale.

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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