Question 1

A "stockout" occurs when

Accepted Answer

A)  brokers run out of shares of stock to sell of a particular company. 
B)  a disruption due to a power outage, etc., causes a temporary production shutdown. 
C)  a company holds too many goods in inventories. 
D)  a firm loses sales because goods consumers want are not available. 
A)  brokers run out of shares of stock to sell of a particular company. 
B)  a disruption due to a power outage, etc., causes a temporary production shutdown. 
C)  a company holds too many goods in inventories. 
D)  a firm loses sales because goods consumers want are not available.

Question 2

Figure 11-15  
-Refer to Figure 11-15. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?

Accepted Answer

A)  combination e: 10 hours of labor and 48 units of capital 
B)  combination f: 40 hours of labor and 24 units of capital 
C)  combination g: 60 hours of labor and 14 units of capital 
D)  combination h: 60 hours of labor and 9 units of capital 
A)  combination e: 10 hours of labor and 48 units of capital 
B)  combination f: 40 hours of labor and 24 units of capital 
C)  combination g: 60 hours of labor and 14 units of capital 
D)  combination h: 60 hours of labor and 9 units of capital

Question 3

In the long run, all of a firm's inputs are variable.

Accepted Answer

A) True 
 B)False

Question 4

Figure 11-15  
-Refer to Figure 11-15. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies?

Accepted Answer

A)  $3,600 
B)  $1,120 
C)  $592 
D)  $560 
A)  $3,600 
B)  $1,120 
C)  $592 
D)  $560

Question 5

Suppose a chain of convenience stores reorganized its system of supplying its stores with food. This led to a sharp reduction in the number of trucks that the company had to use and increased the amount of fresh food on store shelves. Which of the following statements best describes the chain stores' actions?

Accepted Answer

A)  The change implemented is not an example of technological change because it did not require the use of new machinery of equipment. 
B)  Technological change refers only to the introduction of new products or improvements to existing product. As such, the scenario described in the question is not technological change. 
C)  The firm is able to produce more output (increase its sales) using fewer inputs (less trucks). Therefore, the chain of convenience stores has implemented a positive technological change. 
D)  The scenario described is an example of management efficiency and not technological change. Essentially, the chain changes its way of operating its business. 
A)  The change implemented is not an example of technological change because it did not require the use of new machinery of equipment. 
B)  Technological change refers only to the introduction of new products or improvements to existing product. As such, the scenario described in the question is not technological change. 
C)  The firm is able to produce more output (increase its sales) using fewer inputs (less trucks). Therefore, the chain of convenience stores has implemented a positive technological change. 
D)  The scenario described is an example of management efficiency and not technological change. Essentially, the chain changes its way of operating its business.

Question 6

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations.
Total revenue $120,000
Cost of labor 40,000
Cost of materials 15,000
Equipment rental 5,000
a. Calculate her economic costs.
b. Calculate her accounting costs.
c. Calculate her implicit costs.
d. Sally tells you that she would really like to move to a location closer to town but she decided against it because "right now I don't pay any rent and it will cost me $10,000 a year to rent near town." Do you agree with her reasoning?

Accepted Answer

a. $121,000 = 40,000 (labor) + 15,000 (m

Question 7

What are economies of scale? What are diseconomies of scale?

Accepted Answer

Economies of scale occur when

Question 8

Diminishing marginal product of labor occurs when adding another unit of labor

Accepted Answer

A)  decreases output. 
B)  changes output by an amount smaller than the output added by the previous unit of labor. 
C)  increases output by an amount larger than the output added by the previous unit of labor. 
D)  decreases output by an amount smaller than the output added by the previous unit of labor. 
A)  decreases output. 
B)  changes output by an amount smaller than the output added by the previous unit of labor. 
C)  increases output by an amount larger than the output added by the previous unit of labor. 
D)  decreases output by an amount smaller than the output added by the previous unit of labor.

Question 9

Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory. In the following graph, the relationship between costs and output for the smaller factory is represented by the curve ATC1, and the relationship between costs and output for the larger factory is represented by the curve ATC2.   a. If Argyle expects to produce 3,600 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain?
b. If Argyle expects to produce 5,000 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
c. If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6,500 sweaters per week, why isn't it also lower when Argyle produces 4,000 sweaters per week?

Accepted Answer

a. Argyle's costs will be lower with a s

Question 10

Which of the following is a fixed cost?

Accepted Answer

A)  payment to hire a security worker to guard the gate to the factory around the clock 
B)  wages to hire assembly line workers 
C)  payments to an electric utility 
D)  costs of raw materials 
A)  payment to hire a security worker to guard the gate to the factory around the clock 
B)  wages to hire assembly line workers 
C)  payments to an electric utility 
D)  costs of raw materials

Question 11

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs?

Accepted Answer

A)  $80,000 
B)  $70,000 
C)  $42,000 
D)  $41,500 
A)  $80,000 
B)  $70,000 
C)  $42,000 
D)  $41,500

Question 12

Which of the following is true at the output level where average total cost is at its minimum?

Accepted Answer

A)  Marginal cost equals average total cost. 
B)  Average variable cost equals fixed cost. 
C)  Marginal cost equals average variable cost. 
D)  Average total cost equals average fixed cost. 
A)  Marginal cost equals average total cost. 
B)  Average variable cost equals fixed cost. 
C)  Marginal cost equals average variable cost. 
D)  Average total cost equals average fixed cost.

Question 13

Implicit costs can be defined as

Accepted Answer

A)  accounting profit minus explicit cost. 
B)  the non-monetary opportunity cost of using the firm's own resources. 
C)  the deferred cost of production. 
D)  total cost minus fixed costs. 
A)  accounting profit minus explicit cost. 
B)  the non-monetary opportunity cost of using the firm's own resources. 
C)  the deferred cost of production. 
D)  total cost minus fixed costs.

Question 14

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

Accepted Answer

A)  $100 
B)  $124.40 
C)  $220 
D)  $240 
A)  $100 
B)  $124.40 
C)  $220 
D)  $240

Question 15

A firm's expansion path

Accepted Answer

A)  is the same thing as its long-run average cost curve. 
B)  is a curve that shows a firm's cost-minimizing combination of inputs for every level of output, holding input prices constant. 
C)  shows the targeted growth rate in sales over the long run. 
D)  is a curve that shows expected profits at various price levels. 
A)  is the same thing as its long-run average cost curve. 
B)  is a curve that shows a firm's cost-minimizing combination of inputs for every level of output, holding input prices constant. 
C)  shows the targeted growth rate in sales over the long run. 
D)  is a curve that shows expected profits at various price levels.

Question 16

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

Accepted Answer

A)  The fixed cost of running the studio is $22,000. 
B)  The variable cost of running the studio is $22,000. 
C)  The $10,000 Adam spent on equipment is a fixed cost of business, and the $12,000 he'll need to continue operations is a variable cost. 
D)  The $10,000 Adam spent on equipment is the total cost of starting the business, and the $12,000 he'll need to continue operations is a marginal cost. 
A)  The fixed cost of running the studio is $22,000. 
B)  The variable cost of running the studio is $22,000. 
C)  The $10,000 Adam spent on equipment is a fixed cost of business, and the $12,000 he'll need to continue operations is a variable cost. 
D)  The $10,000 Adam spent on equipment is the total cost of starting the business, and the $12,000 he'll need to continue operations is a marginal cost.

Question 17

Higher isocost lines correspond to higher

Accepted Answer

A)  profits. 
B)  total costs of production. 
C)  input prices. 
D)  sales revenue. 
A)  profits. 
B)  total costs of production. 
C)  input prices. 
D)  sales revenue.

Question 18

Suppose you have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for $130 each. Your competitor who has a store of the same size as yours is currently selling about 10 machines a month at a price of $200 per machine. You expect to sell about 6 machines a month at a price of $220 per machine. If you lower your price, you expect to make a loss. Which of the following could explain why your competitor is able to profitably sell the machine at a lower price although the cost of purchasing the machine is the same for the both of you?

Accepted Answer

A)  The competing store probably has a lower marginal cost of production. 
B)  The competing store probably has a lower average variable cost of production. 
C)  The competing store's goal is to maximize revenue and not profit. 
D)  The competing store probably has a lower average cost because average fixed cost falls as output increases. 
A)  The competing store probably has a lower marginal cost of production. 
B)  The competing store probably has a lower average variable cost of production. 
C)  The competing store's goal is to maximize revenue and not profit. 
D)  The competing store probably has a lower average cost because average fixed cost falls as output increases.

Question 19

Which of the following statements is true?

Accepted Answer

A)  Opportunity cost = explicit cost - implicit cost. 
B)  Total cost = fixed cost + implicit cost. 
C)  Total cost = fixed cost + variable cost. 
D)  Variable cost = wages + salaries + benefits. 
A)  Opportunity cost = explicit cost - implicit cost. 
B)  Total cost = fixed cost + implicit cost. 
C)  Total cost = fixed cost + variable cost. 
D)  Variable cost = wages + salaries + benefits.

Question 20

The absolute value of the slope of an isocost line equals the ratio of

Accepted Answer

A)  the marginal productivities of the two inputs. 
B)  the prices of the two inputs. 
C)  the marginal utilities of the two inputs. 
D)  the quantities of the two inputs. 
A)  the marginal productivities of the two inputs. 
B)  the prices of the two inputs. 
C)  the marginal utilities of the two inputs. 
D)  the quantities of the two inputs.

Exam 11: Technology, Production, and Costs

A "stockout" occurs when

Figure 11-15 -Refer to Figure 11-15. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?

In the long run, all of a firm's inputs are variable.

Figure 11-15 -Refer to Figure 11-15. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies?

What are economies of scale? What are diseconomies of scale?

Diminishing marginal product of labor occurs when adding another unit of labor

Which of the following is a fixed cost?

Which of the following is true at the output level where average total cost is at its minimum?

Implicit costs can be defined as

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

A firm's expansion path

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

Higher isocost lines correspond to higher

Which of the following statements is true?

The absolute value of the slope of an isocost line equals the ratio of

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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