Question 1

Accounting profit is equal to:

Accepted Answer

A)  total revenue minus the explicit cost of producing goods and services 
B)  total revenue minus the opportunity cost of producing goods and services 
C)  average revenue minus the average cost of producing the last unit of a good or service 
D)  marginal revenue minus marginal cost 
A)  total revenue minus the explicit cost of producing goods and services 
B)  total revenue minus the opportunity cost of producing goods and services 
C)  average revenue minus the average cost of producing the last unit of a good or service 
D)  marginal revenue minus marginal cost

Question 2

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Accepted Answer

An accountant would not include the forg

Question 3

Explain why the long-run average total cost curve has a U-shape.

Accepted Answer

As the firm increases its size it is ini

Question 4

In the long run:

Accepted Answer

A)  variable inputs are rarely used 
B)  variable inputs change to fixed inputs 
C)  some inputs, such as plant and machinery, remain fixed 
D)  all inputs are considered to be variable 
A)  variable inputs are rarely used 
B)  variable inputs change to fixed inputs 
C)  some inputs, such as plant and machinery, remain fixed 
D)  all inputs are considered to be variable

Question 5

The marginal cost curve can rise even if the average total cost is falling.

Accepted Answer

A) True 
 B)False

Question 6

As a starting point, economists assume that firms are organised to: (i) maximise their sales
(ii) maximise their profit
(iii) minimise their tax

Accepted Answer

A)  (i) only 
B)  (i) and (ii) 
C)  (ii) only 
D)  (i) and (iii) 
A)  (i) only 
B)  (i) and (ii) 
C)  (ii) only 
D)  (i) and (iii)

Question 7

Graph 13-5
   The set of curves above reflect information about the cost structure of a firm. Use this graph to answer the following question(s).
-Refer to Graph 13-5. Which of the curves is most likely to represent average variable cost?

Accepted Answer

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

Question 8

Graph 13-5
   The set of curves above reflect information about the cost structure of a firm. Use this graph to answer the following question(s).
-Refer to Graph 13-5. This particular firm is necessarily experiencing increasing marginal product when curve:

Accepted Answer

A)  A is falling 
B)  B is falling 
C)  C is falling 
D)  D is falling 
A)  A is falling 
B)  B is falling 
C)  C is falling 
D)  D is falling

Question 9

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory.
  
-Refer to Table 13-1. The average total cost of producing 4 kayaks is:

Accepted Answer

A)  $22 
B)  $12 
C)  $9 
D)  $8 
A)  $22 
B)  $12 
C)  $9 
D)  $8

Question 10

The use of specialisation to achieve economies of scale is one reason modern societies are as prosperous as they are.

Accepted Answer

A) True 
 B)False

Question 11

Implicit costs that do not require a money outlay are typically ignored by economists.

Accepted Answer

A) True 
 B)False

Question 12

Graph 13-6
   This graph depicts average total cost functions for a firm that produces automobiles. Use the graph to answer the following question(s).
-Refer to Graph 13-6. At levels of output above point N, the firm experiences:

Accepted Answer

A)  economies of scale 
B)  accounting profit 
C)  economic profit 
D)  diseconomies of scale 
A)  economies of scale 
B)  accounting profit 
C)  economic profit 
D)  diseconomies of scale

Question 13

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. What is the average variable cost for the month if six bicycles are produced?

Accepted Answer

A)  $200 
B)  $265 
C)  $465 
D)  $1590 
A)  $200 
B)  $265 
C)  $465 
D)  $1590

Question 14

If a firm increases its output by one unit, the amount by which its costs increase by is called:

Accepted Answer

A)  marginal cost 
B)  average cost 
C)  marginal product 
D)  variable cost 
A)  marginal cost 
B)  average cost 
C)  marginal product 
D)  variable cost

Question 15

Economic profit is equal to:

Accepted Answer

A)  total revenue minus the opportunity cost of producing goods and services 
B)  total revenue minus the accounting cost of producing goods and services 
C)  total revenue minus the explicit cost of producing goods and services 
D)  average revenue minus the average cost of producing the last unit of a good or service 
A)  total revenue minus the opportunity cost of producing goods and services 
B)  total revenue minus the accounting cost of producing goods and services 
C)  total revenue minus the explicit cost of producing goods and services 
D)  average revenue minus the average cost of producing the last unit of a good or service

Question 16

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. The changing slope of the total cost curve reflects:

Accepted Answer

A)  decreasing average cost 
B)  increasing marginal product 
C)  decreasing marginal product 
D)  increasing fixed cost 
A)  decreasing average cost 
B)  increasing marginal product 
C)  decreasing marginal product 
D)  increasing fixed cost

Question 17

In the long run there are no fixed inputs.

Accepted Answer

A) True 
 B)False

Question 18

Fixed costs are those costs that remain fixed no matter how long the time horizon is.

Accepted Answer

A) True 
 B)False

Question 19

In reference to setting the production level, a firm's cost curves:

Accepted Answer

A)  dictate what decisions the firm will make 
B)  have no bearing on what decisions the firm will make 
C)  by themselves do not tell us what decisions the firm will make 
D)  none of the above are true 
A)  dictate what decisions the firm will make 
B)  have no bearing on what decisions the firm will make 
C)  by themselves do not tell us what decisions the firm will make 
D)  none of the above are true

Question 20

The marginal cost curve crosses the average total cost curve at:

Accepted Answer

A)  the efficient scale 
B)  economies of scale 
C)  diseconomies of scale 
D)  maximum ATC 
A)  the efficient scale 
B)  economies of scale 
C)  diseconomies of scale 
D)  maximum ATC

Exam 13: The Costs of Production

Accounting profit is equal to:

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Explain why the long-run average total cost curve has a U-shape.

In the long run:

The marginal cost curve can rise even if the average total cost is falling.

As a starting point, economists assume that firms are organised to: (i) maximise their sales (ii) maximise their profit (iii) minimise their tax

Graph 13-5 The set of curves above reflect information about the cost structure of a firm. Use this graph to answer the following question(s). -Refer to Graph 13-5. Which of the curves is most likely to represent average variable cost?

Graph 13-5 The set of curves above reflect information about the cost structure of a firm. Use this graph to answer the following question(s). -Refer to Graph 13-5. This particular firm is necessarily experiencing increasing marginal product when curve:

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1. The average total cost of producing 4 kayaks is:

The use of specialisation to achieve economies of scale is one reason modern societies are as prosperous as they are.

Implicit costs that do not require a money outlay are typically ignored by economists.

Graph 13-6 This graph depicts average total cost functions for a firm that produces automobiles. Use the graph to answer the following question(s). -Refer to Graph 13-6. At levels of output above point N, the firm experiences:

If a firm increases its output by one unit, the amount by which its costs increase by is called:

Economic profit is equal to:

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. The changing slope of the total cost curve reflects:

In the long run there are no fixed inputs.

Fixed costs are those costs that remain fixed no matter how long the time horizon is.

In reference to setting the production level, a firm's cost curves:

The marginal cost curve crosses the average total cost curve at:

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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