Question 1

Are the costs of utilities always fixed, always variable, or can they be both? Briefly explain.

Accepted Answer

For many firms, the cost of utilities ca

Question 2

Figure 11-7   Figure 11-7 shows the cost structure for a firm.
-Refer to Figure 11-7. When the output level is 100 units, average fixed cost is

Accepted Answer

A)  $10. 
B)  $8. 
C)  $5. 
D)  This cannot be determined from the diagram. 
A)  $10. 
B)  $8. 
C)  $5. 
D)  This cannot be determined from the diagram.

Question 3

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. The highest value of the average product is labor is ________ when Manny hires ________ workers.

Accepted Answer

A)  80; 3 
B)  100; 3 
C)  100; 2 
D)  80; 4 
A)  80; 3 
B)  100; 3 
C)  100; 2 
D)  80; 4

Question 4

Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move

Accepted Answer

A)  Jennifer's explicit costs fall and her implicit costs rise. 
B)  Jennifer's total costs fall. 
C)  Jennifer's implicit costs fall. 
D)  Jennifer's opportunity costs fall. 
A)  Jennifer's explicit costs fall and her implicit costs rise. 
B)  Jennifer's total costs fall. 
C)  Jennifer's implicit costs fall. 
D)  Jennifer's opportunity costs fall.

Question 5

Which of the following can a firm do in the long run but not in the short run?

Accepted Answer

A)  decrease the size of its physical plant 
B)  reduce its rate of output by laying off workers 
C)  increase its variable costs 
D)  increase its use of raw materials 
A)  decrease the size of its physical plant 
B)  reduce its rate of output by laying off workers 
C)  increase its variable costs 
D)  increase its use of raw materials

Question 6

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

Accepted Answer

A)  Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. 
B)  as Toyota expanded its capacity, it experienced diseconomies of scale. 
C)  Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. 
D)  high demand for Toyota's cars prevented the company from focusing on its strength: auto design. 
A)  Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. 
B)  as Toyota expanded its capacity, it experienced diseconomies of scale. 
C)  Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. 
D)  high demand for Toyota's cars prevented the company from focusing on its strength: auto design.

Question 7

Which of the following costs will not change as output changes?

Accepted Answer

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

Question 8

The long-run average cost curve shows

Accepted Answer

A)  the lowest average cost of producing every level of output in the long run. 
B)  where the most profitable level of output occurs. 
C)  the average cost of producing where diminishing returns are not present. 
D)  the plant size or scale that the firm should build. 
A)  the lowest average cost of producing every level of output in the long run. 
B)  where the most profitable level of output occurs. 
C)  the average cost of producing where diminishing returns are not present. 
D)  the plant size or scale that the firm should build.

Question 9

Which of the following is an implicit cost of production?

Accepted Answer

A)  the loss in the value of capital equipment due to wear and tear 
B)  the salary you pay yourself for running your business 
C)  the utility bill paid to water, electricity, and natural gas companies 
D)  the interest you pay your mother for the money she loaned you to start your business 
A)  the loss in the value of capital equipment due to wear and tear 
B)  the salary you pay yourself for running your business 
C)  the utility bill paid to water, electricity, and natural gas companies 
D)  the interest you pay your mother for the money she loaned you to start your business

Question 10

Which of the following statements is true?

Accepted Answer

A)  As output increases, average fixed cost becomes smaller and smaller. 
B)  Average fixed cost does not change as output increases. 
C)  The marginal cost curve intersects the average fixed cost curve at its minimum point. 
D)  When marginal cost is greater than average fixed cost, average fixed cost increases. 
A)  As output increases, average fixed cost becomes smaller and smaller. 
B)  Average fixed cost does not change as output increases. 
C)  The marginal cost curve intersects the average fixed cost curve at its minimum point. 
D)  When marginal cost is greater than average fixed cost, average fixed cost increases.

Question 11

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 firm's total cost while the price of labor and capital remain unchanged?

Accepted Answer

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

Question 12

Which of the following statements is true?

Accepted Answer

A)  An explicit cost is an actual cost; an implicit cost is a theoretical cost. 
B)  Economic costs include both explicit costs and implicit costs. 
C)  An explicit cost is more important, dollar for dollar, than an implicit cost. 
D)  Explicit costs are accounting costs, not economic costs; implicit costs are economic costs, not accounting costs. 
A)  An explicit cost is an actual cost; an implicit cost is a theoretical cost. 
B)  Economic costs include both explicit costs and implicit costs. 
C)  An explicit cost is more important, dollar for dollar, than an implicit cost. 
D)  Explicit costs are accounting costs, not economic costs; implicit costs are economic costs, not accounting costs.

Question 13

As output increases, the distance between average total cost and average variable cost increases.

Accepted Answer

A) True 
 B)False

Question 14

Joan Jillson owns a coffee shop. Assume that the marginal product of the labor Joan employs (MPL) equals 500 cups per week and the marginal product of her shop's capital (MPK) equals 1,000. Assume also that the wage (w) Joan pays her workers equals $250 per week and the rental price (r) of her capital - her coffee machines - equals $500 per week. Which of the following correctly analyzes whether Joan is minimizing her costs?

Accepted Answer

A)  No, Joan is not minimizing her costs because MPK is greater than MPL and r is greater than w. 
B)  Yes, Joan is minimizing her costs because MPK/r equals MPL/w. 
C)  No, Joan is not minimizing her costs because MPL × w is less than MPK × r. 
D)  Yes, Joan is minimizing her costs because the she is a price-taker in the markets for labor and capital. 
A)  No, Joan is not minimizing her costs because MPK is greater than MPL and r is greater than w. 
B)  Yes, Joan is minimizing her costs because MPK/r equals MPL/w. 
C)  No, Joan is not minimizing her costs because MPL × w is less than MPK × r. 
D)  Yes, Joan is minimizing her costs because the she is a price-taker in the markets for labor and capital.

Question 15

Diseconomies of scale occur when

Accepted Answer

A)  long-run average costs rise as a firm increases its output. 
B)  long-run average costs fall as a firm expands its plant size. 
C)  short-run average costs rise as a firm expands its plant size. 
D)  long-run labor costs rise as a firm increases its output. 
A)  long-run average costs rise as a firm increases its output. 
B)  long-run average costs fall as a firm expands its plant size. 
C)  short-run average costs rise as a firm expands its plant size. 
D)  long-run labor costs rise as a firm increases its output.

Question 16

Table 11-7
   Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 11-7. What is the marginal cost per unit of production when the firm produces 100 lanterns?

Accepted Answer

A)  $420 
B)  $32 
C)  $11.10 
D)  $8.10 
A)  $420 
B)  $32 
C)  $11.10 
D)  $8.10

Question 17

Figure 11-10  
-Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production?

Accepted Answer

A)  In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37. 
B)  In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41. 
C)  In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41. 
D)  In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37. 
A)  In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37. 
B)  In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41. 
C)  In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41. 
D)  In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37.

Question 18

Table 11-7
   Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 11-7. What is the average total cost of production when the firm produces 120 lanterns?

Accepted Answer

A)  $1,680 
B)  $72 
C)  $14 
D)  $12.30 
A)  $1,680 
B)  $72 
C)  $14 
D)  $12.30

Question 19

Over the past twenty years, the number of small family farms has fallen significantly and in their place there are fewer, but larger, farms owned by corporations. Which of the following best explains this trend?

Accepted Answer

A)  diseconomies of scale in farming 
B)  economies of scale in farming 
C)  diminishing returns to labor in farming 
D)  declining productivity 
A)  diseconomies of scale in farming 
B)  economies of scale in farming 
C)  diminishing returns to labor in farming 
D)  declining productivity

Question 20

Which of the following statements is false?

Accepted Answer

A)  When marginal cost equals average total cost, average total cost is at its highest value. 
B)  The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points. 
C)  The difference between average total cost and average fixed cost is average variable cost. 
D)  Firms often refer to the process of lowering average fixed cost as "spreading the overhead." 
A)  When marginal cost equals average total cost, average total cost is at its highest value. 
B)  The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points. 
C)  The difference between average total cost and average fixed cost is average variable cost. 
D)  Firms often refer to the process of lowering average fixed cost as "spreading the overhead."

Exam 11: Technology, Production, and Costs

Are the costs of utilities always fixed, always variable, or can they be both? Briefly explain.

Figure 11-7 Figure 11-7 shows the cost structure for a firm. -Refer to Figure 11-7. When the output level is 100 units, average fixed cost is

Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move

Which of the following can a firm do in the long run but not in the short run?

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

Which of the following costs will not change as output changes?

The long-run average cost curve shows

Which of the following is an implicit cost of production?

Which of the following statements is true?

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 firm's total cost while the price of labor and capital remain unchanged?

Which of the following statements is true?

As output increases, the distance between average total cost and average variable cost increases.

Diseconomies of scale occur when

Table 11-7 Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights. -Refer to Table 11-7. What is the marginal cost per unit of production when the firm produces 100 lanterns?

Figure 11-10 -Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production?

Table 11-7 Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights. -Refer to Table 11-7. What is the average total cost of production when the firm produces 120 lanterns?

Over the past twenty years, the number of small family farms has fallen significantly and in their place there are fewer, but larger, farms owned by corporations. Which of the following best explains this trend?

Which of the following statements is false?

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

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