Question 1

Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is divided evenly over all the units produced?"

Accepted Answer

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

Question 2

On a 100-acre farm,a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers.He is able to produce 4,400 bushels of wheat when he hires 3 workers.Which of the following possibilities is consistent with the property of diminishing marginal product?

Accepted Answer

A)  The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. 
B)  The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers. 
C)  The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers. 
D)  Any of the above could be correct. 
A)  The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. 
B)  The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers. 
C)  The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers. 
D)  Any of the above could be correct.

Question 3

When the marginal product of an input declines as the quantity of that input increases,the production function exhibits

Accepted Answer

A)  increasing marginal product. 
B)  diminishing marginal product. 
C)  diminishing total product. 
D)  Both b and c are correct. 
A)  increasing marginal product. 
B)  diminishing marginal product. 
C)  diminishing total product. 
D)  Both b and c are correct.

Question 4

Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles.  
-Refer to Figure 13-9.This firm experiences diseconomies of scale at what output levels?

Accepted Answer

A)  output levels greater than N 
B)  output levels between M and N 
C)  output levels less than M 
D)  All of the above are correct as long as the firm is operating in the long run. 
A)  output levels greater than N 
B)  output levels between M and N 
C)  output levels less than M 
D)  All of the above are correct as long as the firm is operating in the long run.

Question 5

Scenario 13-5
Samantha has been working for a law firm and earning an annual salary of $80,000.She decides to open her own practice.Her annual expenses will include $15,000 for office rent,$3,000 for equipment rental,$1,000 for supplies,$1,200 for utilities,and a $35,000 salary for a secretary/bookkeeper.Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
-Refer to Scenario 13-5.According to Samantha's accountant,which of the following revenue totals will yield her business $50,000 in profits?

Accepted Answer

A)  $55,200. 
B)  $105,200. 
C)  $132,500. 
D)  $185,700. 
A)  $55,200. 
B)  $105,200. 
C)  $132,500. 
D)  $185,700.

Question 6

Scenario 13-4
Wanda owns a lemonade stand.She produces lemonade using five inputs: water,sugar,lemons,paper cups,and labor.Her costs per glass are as follows: $0.01 for water,$0.02 for sugar,$0.03 for lemons,$0.02 for cups,and $0.10 for the opportunity cost of her labor.She can sell 300 glasses for $0.50 each.
-Refer to Scenario 13-4.What are Wanda's total economic profits?

Accepted Answer

A)  $150 
B)  $126 
C)  $96 
D)  $54 
A)  $150 
B)  $126 
C)  $96 
D)  $54

Question 7

The efficient scale of the firm is the quantity of output that

Accepted Answer

A)  maximizes marginal product. 
B)  maximizes profit. 
C)  minimizes average total cost. 
D)  minimizes average variable cost. 
A)  maximizes marginal product. 
B)  maximizes profit. 
C)  minimizes average total cost. 
D)  minimizes average variable cost.

Question 8

Table 13-2
  
-Refer to Table 13-2.At which number of workers does diminishing marginal product begin?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 9

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired.In addition,suppose that when the firm hires 4 workers,the firm produces 50 units of output.If the fixed cost of production is $4,the variable cost per unit of labor is $20,and the marginal product of labor for the fifth unit of labor is 2,what is the average total cost of production when the firm hires 5 workers?

Accepted Answer

A)  $2.00 
B)  $20.00 
C)  $20.80 
D)  $22.80 
A)  $2.00 
B)  $20.00 
C)  $20.80 
D)  $22.80

Question 10

Table 13-10
Jimmy's Gigaplots Factory
  
-Refer to Table 13-10.What is the average total cost of producing 6 gigaplots at Jimmy's Gigaplot factory?

Accepted Answer

A)  $16.34 
B)  $22.00 
C)  $22.17 
D)  $22.57 
A)  $16.34 
B)  $22.00 
C)  $22.17 
D)  $22.57

Question 11

Table 13-11
  
-Refer to Table 13-11.What is the total fixed cost for this firm?

Accepted Answer

A)  $20 
B)  $30 
C)  $40 
D)  $50 
A)  $20 
B)  $30 
C)  $40 
D)  $50

Question 12

Table 13-1
Alyson's Pet Sitting Service
  
-Refer to Table 13-1.Alyson's pet sitting service experiences diminishing marginal productivity with the addition of the

Accepted Answer

A)  first worker. 
B)  second worker. 
C)  third worker. 
D)  fourth worker. 
A)  first worker. 
B)  second worker. 
C)  third worker. 
D)  fourth worker.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Marginal cost tells us the

Accepted Answer

A)  value of all resources used in a production process. 
B)  marginal increment to profitability when price is constant. 
C)  amount by which total cost rises when output is increased by one unit. 
D)  amount by which output rises when labor is increased by one unit. 
A)  value of all resources used in a production process. 
B)  marginal increment to profitability when price is constant. 
C)  amount by which total cost rises when output is increased by one unit. 
D)  amount by which output rises when labor is increased by one unit.

Question 15

In the short run,a firm incurs fixed costs

Accepted Answer

A)  only if it incurs variable costs. 
B)  only if it produces no output. 
C)  only if it produces a positive quantity of output. 
D)  whether it produces output or not. 
A)  only if it incurs variable costs. 
B)  only if it produces no output. 
C)  only if it produces a positive quantity of output. 
D)  whether it produces output or not.

Question 16

When a firm is making a profit-maximizing production decision,which of the following principles of economics is likely to be most important to the firm's decision?

Accepted Answer

A)  The cost of something is what you give up to get it. 
B)  A country's standard of living depends on its ability to produce goods and services. 
C)  Prices rise when the government prints too much money. 
D)  Governments can sometimes improve market outcomes. 
A)  The cost of something is what you give up to get it. 
B)  A country's standard of living depends on its ability to produce goods and services. 
C)  Prices rise when the government prints too much money. 
D)  Governments can sometimes improve market outcomes.

Question 17

Table 13-8
Eileen's Elegant Earrings produces pairs of earrings for its mail order catalogue business.Each pair is shipped in a separate box.She 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.There are no implicit costs.
  
-Refer to Table 13-8.During the week of July 4th,Eileen doesn't produce any earrings.What are her costs during the week?

Accepted Answer

A)  $0 
B)  $150 
C)  $275 
D)  $425 
A)  $0 
B)  $150 
C)  $275 
D)  $425

Question 18

Scenario 13-6
A certain firm produces and sells staplers.Last year,it produced 7,000 staplers and sold each stapler for $6.In producing the 7,000 staplers,it incurred variable costs of $28,000 and a total cost of $45,000.
-Refer to Scenario 13-6.Suppose the owner of the business had an offer to work for another firm that raises his opportunity cost by $25,000.The firm's accounting profit for the year was

Accepted Answer

A)  $-28,000. 
B)  $-25,000 
C)  $-3,000. 
D)  $17,000. 
A)  $-28,000. 
B)  $-25,000 
C)  $-3,000. 
D)  $17,000.

Question 19

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 20

Economic profit is greater than or equal to accounting profit.

Accepted Answer

A) True 
 B)False

Exam 13: The Costs of Production

Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is divided evenly over all the units produced?"

On a 100-acre farm,a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers.He is able to produce 4,400 bushels of wheat when he hires 3 workers.Which of the following possibilities is consistent with the property of diminishing marginal product?

When the marginal product of an input declines as the quantity of that input increases,the production function exhibits

Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. -Refer to Figure 13-9.This firm experiences diseconomies of scale at what output levels?

The efficient scale of the firm is the quantity of output that

Table 13-2 -Refer to Table 13-2.At which number of workers does diminishing marginal product begin?

Table 13-10 Jimmy's Gigaplots Factory -Refer to Table 13-10.What is the average total cost of producing 6 gigaplots at Jimmy's Gigaplot factory?

Table 13-11 -Refer to Table 13-11.What is the total fixed cost for this firm?

Table 13-1 Alyson's Pet Sitting Service -Refer to Table 13-1.Alyson's pet sitting service experiences diminishing marginal productivity with the addition of the

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

Marginal cost tells us the

In the short run,a firm incurs fixed costs

When a firm is making a profit-maximizing production decision,which of the following principles of economics is likely to be most important to the firm's decision?

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.

Economic profit is greater than or equal to accounting profit.

Ten Principles of 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

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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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