Question 1

Which of the following is not an explicit cost for the owner of a local pizza parlor?

Accepted Answer

A)  flour 
B)  cleaning products 
C)  other uses for the land that the parlor sits on 
D)  pizza ovens 
A)  flour 
B)  cleaning products 
C)  other uses for the land that the parlor sits on 
D)  pizza ovens C

Question 2

Which of the following is true?

Accepted Answer

A)  If average total cost is less than marginal cost, then average total cost is decreasing. 
B)  If average total cost exceeds marginal cost, then average total cost is decreasing. 
C)  If average total cost exceeds marginal cost, then average total cost is increasing. 
D)  If average total cost is less than marginal cost, then average total cost is constant. 
A)  If average total cost is less than marginal cost, then average total cost is decreasing. 
B)  If average total cost exceeds marginal cost, then average total cost is decreasing. 
C)  If average total cost exceeds marginal cost, then average total cost is increasing. 
D)  If average total cost is less than marginal cost, then average total cost is constant. B

Question 3

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

Accepted Answer

A)  the marginal cost of providing the second unit is $15. 
B)  the total cost of producing 4 units is $87. 
C)  the average total cost of producing five units is $21. 
D)  all of the above are true. 
A)  the marginal cost of providing the second unit is $15. 
B)  the total cost of producing 4 units is $87. 
C)  the average total cost of producing five units is $21. 
D)  all of the above are true. D

Question 4

In the long-run the firm gets to choose which short-run curve it wants to use.

Accepted Answer

A) True 
 B)False

Question 5

Characteristics of the short run include:

Accepted Answer

A)  at least one fixed input. 
B)  insufficient time for firms to enter or leave the industry in question. 
C)  the applicability of the law of diminishing returns. 
D)  all of the above. 
A)  at least one fixed input. 
B)  insufficient time for firms to enter or leave the industry in question. 
C)  the applicability of the law of diminishing returns. 
D)  all of the above.

Question 6

In the long-run,the firm can only expand output by adding more variable inputs (workers and raw materials).

Accepted Answer

A) True 
 B)False

Question 7

The period of time that is too short for the firm to change the quantity of certain resources used in production,known as fixed inputs,is called the short run.

Accepted Answer

A) True 
 B)False

Question 8

If Oscar's company has a lease that runs until six months from now,which of the following would be true?

Accepted Answer

A)  His rent payments would be considered fixed costs and anything longer than six months would be considered the short run. 
B)  His rent payments would be considered fixed costs and anything less than six months would be considered the short run. 
C)  His rent payments would be considered variable costs and anything longer than six months would be considered the short run. 
D)  His rent payments would be considered variable costs and anything less than six months would be considered the short run. 
A)  His rent payments would be considered fixed costs and anything longer than six months would be considered the short run. 
B)  His rent payments would be considered fixed costs and anything less than six months would be considered the short run. 
C)  His rent payments would be considered variable costs and anything longer than six months would be considered the short run. 
D)  His rent payments would be considered variable costs and anything less than six months would be considered the short run.

Question 9

When average total cost is decreasing as output expands:

Accepted Answer

A)  average fixed cost must be increasing. 
B)  average variable cost must be falling. 
C)  marginal cost must be greater than average total cost. 
D)  marginal cost must be less than average total cost. 
A)  average fixed cost must be increasing. 
B)  average variable cost must be falling. 
C)  marginal cost must be greater than average total cost. 
D)  marginal cost must be less than average total cost.

Question 10

In the short run,AFC is always greater than

Accepted Answer

A)  ATC 
B)  AVC 
C)  MC 
D)  Zero 
A)  ATC 
B)  AVC 
C)  MC 
D)  Zero

Question 11

Average variable cost:

Accepted Answer

A)  first decreases then increases as output expands. 
B)  remains unchanged as output expands. 
C)  always increases as output increases. 
D)  always decreases as output expands. 
A)  first decreases then increases as output expands. 
B)  remains unchanged as output expands. 
C)  always increases as output increases. 
D)  always decreases as output expands.

Question 12

Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000.If he could have been paid $80,000 working for a computer company,his:

Accepted Answer

A)  accounting profit equaled $10,000 and he would be rational to stop working as a contractor. 
B)  accounting profit equaled $50,000 and he would be rational to continue working as a contractor. 
C)  economic profit equaled $50,000 and he would be rational to continue working as a contractor. 
D)  economic profit equaled -$30,000 and he would be rational to stop working as a contractor. 
A)  accounting profit equaled $10,000 and he would be rational to stop working as a contractor. 
B)  accounting profit equaled $50,000 and he would be rational to continue working as a contractor. 
C)  economic profit equaled $50,000 and he would be rational to continue working as a contractor. 
D)  economic profit equaled -$30,000 and he would be rational to stop working as a contractor.

Question 13

If average fixed cost and average variable cost are summed together,the result is:

Accepted Answer

A)  total revenue. 
B)  total profit. 
C)  total cost. 
D)  average total cost. 
A)  total revenue. 
B)  total profit. 
C)  total cost. 
D)  average total cost.

Question 14

Exhibit 11-9   Refer to Exhibit 11-9.At what level of output (in thousands)is average total cost minimized?

Accepted Answer

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

Question 15

Diseconomies of scale are most likely at very low levels of output.

Accepted Answer

A) True 
 B)False

Question 16

When economies of scale exist:

Accepted Answer

A)  per unit production costs increase as output expands. 
B)  per unit production costs decline as output expands. 
C)  marginal cost must decrease as output expands. 
D)  per unit production costs remain constant as output expands. 
A)  per unit production costs increase as output expands. 
B)  per unit production costs decline as output expands. 
C)  marginal cost must decrease as output expands. 
D)  per unit production costs remain constant as output expands.

Question 17

The short-run average total cost curve eventually turns upward to form a U shape because:

Accepted Answer

A)  of diminishing marginal cost. 
B)  of increasing average fixed cost. 
C)  all factors can be varied in the long run. 
D)  of diminishing marginal productivity. 
A)  of diminishing marginal cost. 
B)  of increasing average fixed cost. 
C)  all factors can be varied in the long run. 
D)  of diminishing marginal productivity.

Question 18

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

Accepted Answer

A)  average fixed cost rises from an output of four to an output of five. 
B)  average fixed cost is greater than marginal cost for the second unit produced. 
C)  the output level which minimizes average total cost is four units. 
D)  average variable cost rises, but average total cost falls, as output increases from four to five. 
A)  average fixed cost rises from an output of four to an output of five. 
B)  average fixed cost is greater than marginal cost for the second unit produced. 
C)  the output level which minimizes average total cost is four units. 
D)  average variable cost rises, but average total cost falls, as output increases from four to five.

Question 19

Exhibit 11-4   Refer to Exhibit 11-4.If the firm's goal is to maximize weekly output,how many workers should the firm employ each week?

Accepted Answer

A)  one worker 
B)  two workers 
C)  three workers 
D)  four workers 
A)  one worker 
B)  two workers 
C)  three workers 
D)  four workers

Question 20

What denotes the output level where economies of scale are exhausted and constant returns to scale begin?

Accepted Answer

A)  minimum efficient scale 
B)  break-even point 
C)  efficient equilibrium 
D)  zero economic profit 
A)  minimum efficient scale 
B)  break-even point 
C)  efficient equilibrium 
D)  zero economic profit

Exam 11: The Firm: Production and Costs

Which of the following is not an explicit cost for the owner of a local pizza parlor?

Which of the following is true?

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

In the long-run the firm gets to choose which short-run curve it wants to use.

Characteristics of the short run include:

In the long-run,the firm can only expand output by adding more variable inputs (workers and raw materials).

The period of time that is too short for the firm to change the quantity of certain resources used in production,known as fixed inputs,is called the short run.

If Oscar's company has a lease that runs until six months from now,which of the following would be true?

When average total cost is decreasing as output expands:

In the short run,AFC is always greater than

Average variable cost:

Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000.If he could have been paid $80,000 working for a computer company,his:

If average fixed cost and average variable cost are summed together,the result is:

Exhibit 11-9 Refer to Exhibit 11-9.At what level of output (in thousands)is average total cost minimized?

Diseconomies of scale are most likely at very low levels of output.

When economies of scale exist:

The short-run average total cost curve eventually turns upward to form a U shape because:

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

Exhibit 11-4 Refer to Exhibit 11-4.If the firm's goal is to maximize weekly output,how many workers should the firm employ each week?

What denotes the output level where economies of scale are exhausted and constant returns to scale begin?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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