Question 1

Variable costs equal fixed costs when nothing is produced.

Accepted Answer

A) True 
 B)False

Question 2

Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants one bag of seeds, he gets 30 watermelons. If he plants two bags of seeds, he gets 50 watermelons. If he plants three bags of seeds he gets 60 watermelons. A bag of seeds costs $100 and seeds are his only costs.
-Harry's Hotdogs is a small street vendor business owned by Harry Huggins. If Harry makes 10 hotdogs in his first hour of business and incurs a total cost of $16.50, his average total cost per hotdog is:

Accepted Answer

A)  $1.65 
B)  $6.50 
C)  this is impossible to determine without specific information on fixed cost 
D)  this is impossible to determine without specific information on variable cost 
A)  $1.65 
B)  $6.50 
C)  this is impossible to determine without specific information on fixed cost 
D)  this is impossible to determine without specific information on variable cost

Question 3

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 diminishing marginal product when which of the following is occurring? (i) line A is rising
(ii) line B is rising
(iii) line C is rising

Accepted Answer

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

Question 4

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).
-When a factory is operating in the short run:

Accepted Answer

A)  total cost and variable cost are usually the same 
B)  average fixed cost rises as output increases 
C)  it cannot adjust the quantity of fixed inputs 
D)  it cannot alter variable costs 
A)  total cost and variable cost are usually the same 
B)  average fixed cost rises as output increases 
C)  it cannot adjust the quantity of fixed inputs 
D)  it cannot alter variable costs

Question 5

Accountants keep track of the money that flows into and out of firms.

Accepted Answer

A) True 
 B)False

Question 6

If a firm mothballs a factory so that its output is zero, which of the following costs will also be zero?

Accepted Answer

A)  variable cost 
B)  total cost 
C)  average cost 
D)  all of the above 
A)  variable cost 
B)  total cost 
C)  average cost 
D)  all of the above

Question 7

Which of the following describes the marginal product of labour?

Accepted Answer

A)  the increase in labour necessary to generate a one-unit increase in output 
B)  the increase in output obtained from a one-unit increase in labour 
C)  the additional profit created with a one-unit increase in labour 
D)  the additional cost created with a one-unit increase in labour 
A)  the increase in labour necessary to generate a one-unit increase in output 
B)  the increase in output obtained from a one-unit increase in labour 
C)  the additional profit created with a one-unit increase in labour 
D)  the additional cost created with a one-unit increase in labour

Question 8

Accounting profit is equal to which of the following? (i) economic profit + implicit costs
(ii) total revenue - implicit costs
(iii) total revenue - opportunity costs

Accepted Answer

A)  (iii) only 
B)  (i) and (ii) 
C)  (i) only 
D)  none of the above 
A)  (iii) only 
B)  (i) and (ii) 
C)  (i) only 
D)  none of the above

Question 9

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. What is the total cost associated with making 890 boxes of premium chocolates per week?

Accepted Answer

A)  $975 
B)  $1100 
C)  $1250 
D)  $1375 
A)  $975 
B)  $1100 
C)  $1250 
D)  $1375

Question 10

Amy owns a photography business. Her accountant most likely includes which of the following costs on her financial statements?

Accepted Answer

A)  the bank interest payments on her savings before she used them to buy her cameras and lenses 
B)  the cost of developing her film 
C)  the salary Amy was previously earning as a teacher 
D)  all of the above 
A)  the bank interest payments on her savings before she used them to buy her cameras and lenses 
B)  the cost of developing her film 
C)  the salary Amy was previously earning as a teacher 
D)  all of the above

Question 11

At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost:

Accepted Answer

A)  falls 
B)  rises 
C)  remains unaffected 
D)  all of the above are possible; it depends on the shape of the marginal cost curve 
A)  falls 
B)  rises 
C)  remains unaffected 
D)  all of the above are possible; it depends on the shape of the marginal cost curve

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. In the long run, the firm can operate on which of the following average total cost curves?

Accepted Answer

A)  ATCA 
B)  ATCB 
C)  ATCC 
D)  any of the above 
A)  ATCA 
B)  ATCB 
C)  ATCC 
D)  any of the above

Question 13

Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants one bag of seeds, he gets 30 watermelons. If he plants two bags of seeds, he gets 50 watermelons. If he plants three bags of seeds he gets 60 watermelons. A bag of seeds costs $100 and seeds are his only costs.
-According to the information provided, which of the following statements is(are) true of Jack's marginal cost? (i) his marginal cost curve is U-shaped
(ii) his marginal cost increases with increased watermelon output
(iii) his marginal cost reflects diminishing marginal product

Accepted Answer

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

Question 14

The amount of money that a firm pays to buy inputs is called:

Accepted Answer

A)  variable cost 
B)  marginal cost 
C)  fixed cost 
D)  total cost 
A)  variable cost 
B)  marginal cost 
C)  fixed cost 
D)  total cost

Question 15

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. Which of the curves is most likely to characterise the short-run average total cost curve of the biggest factory?

Accepted Answer

A)  ATCA 
B)  ATCB 
C)  ATCC 
D)  ATCD 
A)  ATCA 
B)  ATCB 
C)  ATCC 
D)  ATCD

Question 16

Variable costs usually change as the firm alters the quantity of output produced.

Accepted Answer

A) True 
 B)False

Question 17

Average total cost necessarily rises due to which of the following? (i) rising marginal cost
(ii) increasing marginal product
(iii) decreasing marginal cost

Accepted Answer

A)  (i) only 
B)  (i) and (ii) 
C)  (ii) only 
D)  none of the above 
A)  (i) only 
B)  (i) and (ii) 
C)  (ii) only 
D)  none of the above

Question 18

The firm's total cost can be used to determine both the firm's average total cost and its marginal cost.

Accepted Answer

A) True 
 B)False

Question 19

Economists and accountants both include forgone income as a cost to a small business owner.

Accepted Answer

A) True 
 B)False

Question 20

Amy runs a successful wedding photography business. Examples of her variable costs include:

Accepted Answer

A)  the cost of developing her film 
B)  the cost of buying a camera for her work 
C)  the cost of hiring a graphic designer to design a business card. 
D)  all of the above 
A)  the cost of developing her film 
B)  the cost of buying a camera for her work 
C)  the cost of hiring a graphic designer to design a business card. 
D)  all of the above

Exam 13: The Costs of Production

Variable costs equal fixed costs when nothing is produced.

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). -When a factory is operating in the short run:

Accountants keep track of the money that flows into and out of firms.

If a firm mothballs a factory so that its output is zero, which of the following costs will also be zero?

Which of the following describes the marginal product of labour?

Accounting profit is equal to which of the following? (i) economic profit + implicit costs (ii) total revenue - implicit costs (iii) total revenue - opportunity costs

Amy owns a photography business. Her accountant most likely includes which of the following costs on her financial statements?

At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost:

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. In the long run, the firm can operate on which of the following average total cost curves?

The amount of money that a firm pays to buy inputs is called:

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. Which of the curves is most likely to characterise the short-run average total cost curve of the biggest factory?

Variable costs usually change as the firm alters the quantity of output produced.

Average total cost necessarily rises due to which of the following? (i) rising marginal cost (ii) increasing marginal product (iii) decreasing marginal cost

The firm's total cost can be used to determine both the firm's average total cost and its marginal cost.

Economists and accountants both include forgone income as a cost to a small business owner.

Amy runs a successful wedding photography business. Examples of her variable costs include:

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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