Question 1

A characteristic of the long run is

Accepted Answer

A)  there are fixed inputs. 
B)  all inputs can be varied. 
C)  plant capacity cannot be increased or decreased. 
D)  there are both fixed and variable inputs. 
A)  there are fixed inputs. 
B)  all inputs can be varied. 
C)  plant capacity cannot be increased or decreased. 
D)  there are both fixed and variable inputs.

Question 2

Table 11-3
  
-Refer to Table 11-3. The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes. The capital used to produce the boxes is fixed. Diminishing returns to labor are first observed in this example after Manny hires the ________ worker.

Accepted Answer

A)  second 
B)  third 
C)  fourth 
D)  fifth 
A)  second 
B)  third 
C)  fourth 
D)  fifth

Question 3

As the level of output increases, what happens to the value of average fixed cost, and what happens to the difference between the value of average total cost and average variable cost?

Accepted Answer

As the level of output increases, the va

Question 4

Figure 11-6   Figure 11-6 contains information about the short-run cost structure of a firm.
-Refer to Figure 11-6. In the figure above, which letter represents the average fixed cost curve?

Accepted Answer

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

Question 5

What is the difference between between total costs, variable costs, and fixed costs?

Accepted Answer

Total costs are the costs of all inputs

Question 6

Table 11-1
   Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May.
-Refer to Table 11-1. Diminishing marginal returns sets in when the ________ worker is hired.

Accepted Answer

A)  2nd 
B)  3rd 
C)  4th 
D)  None of the above; the production function displays increasing marginal returns. 
A)  2nd 
B)  3rd 
C)  4th 
D)  None of the above; the production function displays increasing marginal returns.

Question 7

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

Accepted Answer

A)  a long-run production function. 
B)  a long-run marginal cost curve. 
C)  a minimum efficient scale curve. 
D)  a long-run average total cost curve. 
A)  a long-run production function. 
B)  a long-run marginal cost curve. 
C)  a minimum efficient scale curve. 
D)  a long-run average total cost curve.

Question 8

What is the difference between explicit costs and implicit costs? List three examples each of explicit costs and implicit costs that may be experienced by a small business.

Accepted Answer

Explicit costs are costs that involve sp

Question 9

Figure 11-13  
-Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, then along the isocost AF, the total cost

Accepted Answer

A)  is $500. 
B)  is $750. 
C)  is $1,250. 
D)  cannot be determined without the price of capital. 
A)  is $500. 
B)  is $750. 
C)  is $1,250. 
D)  cannot be determined without the price of capital.

Question 10

An expansion path shows

Accepted Answer

A)  the level of sales necessary for a firm if it wants to expand. 
B)  the level of long-run average cost at different scales of operation. 
C)  the least-cost combination of inputs for each level of output. 
D)  the returns to scale at each level of output. 
A)  the level of sales necessary for a firm if it wants to expand. 
B)  the level of long-run average cost at different scales of operation. 
C)  the least-cost combination of inputs for each level of output. 
D)  the returns to scale at each level of output.

Question 11

In the world oil market, oil is supplied up to the point where

Accepted Answer

A)  the marginal cost of the last barrel is just equal to the price buyers are willing to pay for that last barrel. 
B)  the marginal cost of the last barrel is zero. 
C)  the marginal cost of the last barrel is the greatest distance from the price buyers are willing to pay for that last barrel. 
D)  the marginal cost of the last barrel is at a maximum. 
A)  the marginal cost of the last barrel is just equal to the price buyers are willing to pay for that last barrel. 
B)  the marginal cost of the last barrel is zero. 
C)  the marginal cost of the last barrel is the greatest distance from the price buyers are willing to pay for that last barrel. 
D)  the marginal cost of the last barrel is at a maximum.

Question 12

Which of the following is a reason why a firm would experience diseconomies of scale?

Accepted Answer

A)  To finance an increase in the size of its plant, a firm must borrow more money or sell more shares of stock. 
B)  As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations. 
C)  As the size of the firm increases, it becomes more difficult to coordinate the operations of its manufacturing plants. 
D)  As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs. 
A)  To finance an increase in the size of its plant, a firm must borrow more money or sell more shares of stock. 
B)  As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations. 
C)  As the size of the firm increases, it becomes more difficult to coordinate the operations of its manufacturing plants. 
D)  As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs.

Question 13

Figure 11-7   Figure 11-7 shows the cost structure for a firm.
-Refer to Figure 11-7. If output is 100 units, what is the fixed cost of production?

Accepted Answer

A)  $8 
B)  $800 
C)  $1,000 
D)  This cannot be determined from the diagram. 
A)  $8 
B)  $800 
C)  $1,000 
D)  This cannot be determined from the diagram.

Question 14

Figure 11-13  
-Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the price of labor while the price of capital remains unchanged?

Accepted Answer

A)  the movement from AF to BD 
B)  the movement from AF to CE 
C)  the movement from BF to BD 
D)  the movement from BF to CE 
A)  the movement from AF to BD 
B)  the movement from AF to CE 
C)  the movement from BF to BD 
D)  the movement from BF to CE

Question 15

Stan owns a software design business. He obtained a bank loan to buy computer equipment for his business. He pays $1,000 per month for interest on the loan. He has 10 employees, each of whom is paid $4,000 per month. Because his business has been successful, next month he will increase employee wages to $5,000. If the revenue from his business remains at its current level, Stan is considering an addition to his office. Which of the following statements regarding Stan's business is false?

Accepted Answer

A)  The payments Stan makes to his employees are variable costs and explicit costs. 
B)  The monthly payment Stan makes for his bank loan is an implicit cost. 
C)  The monthly payment Stan makes for his bank loan is a fixed cost. 
D)  The time and effort Stan spends on his software design business is an implicit cost. 
A)  The payments Stan makes to his employees are variable costs and explicit costs. 
B)  The monthly payment Stan makes for his bank loan is an implicit cost. 
C)  The monthly payment Stan makes for his bank loan is a fixed cost. 
D)  The time and effort Stan spends on his software design business is an implicit cost.

Question 16

Ford Motor Company started producing the Model A at plants scattered around the United States

Accepted Answer

A)  to save on transport costs. 
B)  because diseconomies of scale at its initial River Rouge plant resulted in high production costs. 
C)  to locate its production centers closer to its customers. 
D)  because it was not able to attract skilled workers in Michigan (where its first plant was located). 
A)  to save on transport costs. 
B)  because diseconomies of scale at its initial River Rouge plant resulted in high production costs. 
C)  to locate its production centers closer to its customers. 
D)  because it was not able to attract skilled workers in Michigan (where its first plant was located).

Question 17

Figure 11-14   Figure 11-14 shows the optimal input combinations for the production of a given quantity of cotton in the United States and in China.
-Refer to Figure 11-14. Consider the following statements: a. For each country, the marginal product per dollar spent on labor equals to the marginal product per dollar spent on capital.
B. The price of labor is relatively higher in the United States than in China and the price of capital is relatively lower in the United States than in China.
C. The price of labor and the price of capital are relatively higher in the United States than in China. Based on the figure, which of the statements above is true?

Accepted Answer

A)  All of the statements are true. 
B)  statements a and c only 
C)  statements a and b only 
D)  statements b and c only 
A)  All of the statements are true. 
B)  statements a and c only 
C)  statements a and b only 
D)  statements b and c only

Question 18

What is the difference between total cost and variable cost in the long run?

Accepted Answer

In the short run, total cost =

Question 19

Table 11-8
   Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-The River Rouge plant was built by the Ford Motor Company in the 1920s to produce the company's Model A car. Which of the following is evidence that the River Rouge plant suffered from diseconomies of scale?

Accepted Answer

A)  Despite an expensive advertising campaign, the Model A did not earn the company a profit. 
B)  Model A cars made at the River Rouge plant failed to earn Ford a profit. Ford eventually constructed smaller plants to make the Model A at a lower average cost. 
C)  Model A cars made at the River Rouge plant failed to earn a profit. Ford reduced the average cost of the Model A by cutting its employees' wages. 
D)  Model A cars made at the River Rouge plant failed to earn a profit because the price of steel used to manufacture the Model A rose when workers in the steel industry went on strike. 
A)  Despite an expensive advertising campaign, the Model A did not earn the company a profit. 
B)  Model A cars made at the River Rouge plant failed to earn Ford a profit. Ford eventually constructed smaller plants to make the Model A at a lower average cost. 
C)  Model A cars made at the River Rouge plant failed to earn a profit. Ford reduced the average cost of the Model A by cutting its employees' wages. 
D)  Model A cars made at the River Rouge plant failed to earn a profit because the price of steel used to manufacture the Model A rose when workers in the steel industry went on strike.

Question 20

Which of the following is the best example of a short-run adjustment?

Accepted Answer

A)  A local bakery purchases another commercial oven as part of its capacity expansion. 
B)  Your local Wal-Mart hires two more associates. 
C)  Smith University completed negotiations to acquire a large piece of land to build its new library. 
D)  Toyota builds a new assembly plant in Texas. 
A)  A local bakery purchases another commercial oven as part of its capacity expansion. 
B)  Your local Wal-Mart hires two more associates. 
C)  Smith University completed negotiations to acquire a large piece of land to build its new library. 
D)  Toyota builds a new assembly plant in Texas.

Exam 11: Technology, Production, and Costs

A characteristic of the long run is

As the level of output increases, what happens to the value of average fixed cost, and what happens to the difference between the value of average total cost and average variable cost?

Figure 11-6 Figure 11-6 contains information about the short-run cost structure of a firm. -Refer to Figure 11-6. In the figure above, which letter represents the average fixed cost curve?

What is the difference between between total costs, variable costs, and fixed costs?

Table 11-1 Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May. -Refer to Table 11-1. Diminishing marginal returns sets in when the ________ worker is hired.

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

What is the difference between explicit costs and implicit costs? List three examples each of explicit costs and implicit costs that may be experienced by a small business.

Figure 11-13 -Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, then along the isocost AF, the total cost

An expansion path shows

In the world oil market, oil is supplied up to the point where

Which of the following is a reason why a firm would experience diseconomies of scale?

Figure 11-7 Figure 11-7 shows the cost structure for a firm. -Refer to Figure 11-7. If output is 100 units, what is the fixed cost of production?

Figure 11-13 -Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the price of labor while the price of capital remains unchanged?

Ford Motor Company started producing the Model A at plants scattered around the United States

What is the difference between total cost and variable cost in the long run?

Which of the following is the best example of a short-run adjustment?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters