Question 1

Describe the relationship between marginal cost and average total cost.

Accepted Answer

If marginal cost for a given output is b

Question 2

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 3

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 labour 40 000
Cost of materials 15 000
Equipment rental 5000
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 (labour)+ 15 000 (ma

Question 4

What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?

Accepted Answer

Minimum efficient scale is the lowest le

Question 5

If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23,what will happen to the average cost of production if the 15th unit is produced?

Accepted Answer

A)  Average cost increases as more is produced. 
B)  Average cost will fall. 
C)  Average cost could increase or decrease depending on what happens to variable cost. 
D)  Average cost could increase or decrease depending on what happens to fixed cost. 
A)  Average cost increases as more is produced. 
B)  Average cost will fall. 
C)  Average cost could increase or decrease depending on what happens to variable cost. 
D)  Average cost could increase or decrease depending on what happens to fixed cost.

Question 6

Which of the following is a factor of production that generally is fixed in the short run?

Accepted Answer

A)  Raw materials 
B)  Labour 
C)  A factory building 
D)  Water 
A)  Raw materials 
B)  Labour 
C)  A factory building 
D)  Water

Question 7

In the short run,marginal product of labour increases at first and then falls because

Accepted Answer

A)  as more labour is hired, it is not as skilled as the first labour hired. 
B)  there are fewer opportunities for division of labour and specialisation when fewer workers are hired. 
C)  managerial inefficiency sets in when a firm gets too large. 
D)  the new workers do not have as much experience as those who have been with the firm for a long time and therefore are not as productive. 
A)  as more labour is hired, it is not as skilled as the first labour hired. 
B)  there are fewer opportunities for division of labour and specialisation when fewer workers are hired. 
C)  managerial inefficiency sets in when a firm gets too large. 
D)  the new workers do not have as much experience as those who have been with the firm for a long time and therefore are not as productive.

Question 8

A downward-sloping marginal product of labour curve demonstrates the law of diminishing marginal returns.

Accepted Answer

A) True 
 B)False

Question 9

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 val

Question 10

Minimum efficient scale is defined as the level of output at which

Accepted Answer

A)  all economies of scale are exhausted. 
B)  diminishing returns affect average total cost. 
C)  the firm's long-run average total cost starts falling. 
D)  the maximum output is produced. 
A)  all economies of scale are exhausted. 
B)  diminishing returns affect average total cost. 
C)  the firm's long-run average total cost starts falling. 
D)  the maximum output is produced.

Question 11

An important reason why diseconomies of scale arise is because firms may have to hire lower-skilled workers as firms expand.

Accepted Answer

A) True 
 B)False

Question 12

Figure 6-3   Fancy Footwear manufactures shoes. Figure 6-3 shows Fancy Footwear's marginal product of labour and average product of labour curves in the short run.
-Refer to Figure 6-3.For what quantity of labour does production display diminishing returns?

Accepted Answer

A)  For more than 1 unit of labour 
B)  For more than 4 units of labour 
C)  For more than 5 units of labour 
D)  For more than 8 units of labour 
A)  For more than 1 unit of labour 
B)  For more than 4 units of labour 
C)  For more than 5 units of labour 
D)  For more than 8 units of labour

Question 13

The marginal product of labour is calculated using the formula

Accepted Answer

A)  L/Q. 
B)  ΔL/ΔQ. 
C)  ΔQ/ΔL. 
D)  Q/L. 
A)  L/Q. 
B)  ΔL/ΔQ. 
C)  ΔQ/ΔL. 
D)  Q/L.

Question 14

Bill owns 'Bill's Home of Blues' a store that specialises in selling CDs and DVDs of blues musicians of the 1960s and 1970s.Bill took out a loan from his bank to pay for his store and its initial inventory.Bill pays the bank $900 per week for his loan.The $900 bank payment

Accepted Answer

A)  is a long-run implicit cost. 
B)  is a fixed cost. 
C)  is a short-run implicit cost. 
D)  is a variable cost. 
A)  is a long-run implicit cost. 
B)  is a fixed cost. 
C)  is a short-run implicit cost. 
D)  is a variable cost.

Question 15

In the long run,which of the following is true?

Accepted Answer

A)  Total cost = fixed cost + variable cost. 
B)  The size of a firm's physical plant can be changed, but the firm cannot adopt new technology. 
C)  There are no fixed costs. 
D)  The firm can vary its explicit costs but not its implicit costs. 
A)  Total cost = fixed cost + variable cost. 
B)  The size of a firm's physical plant can be changed, but the firm cannot adopt new technology. 
C)  There are no fixed costs. 
D)  The firm can vary its explicit costs but not its implicit costs.

Question 16

An avocado orchard employs 5 full-time workers.Currently,the average product of labour is 120 kilograms of avocados per day.The orchard hires a 6th full-time worker and his marginal product is 150 kilograms of avocados.The average product of the six workers will now be

Accepted Answer

A)  more than 120 kilograms. 
B)  less than 120 kilograms. 
C)  equal to 120 kilograms. 
D)  less than the marginal product of labour. 
A)  more than 120 kilograms. 
B)  less than 120 kilograms. 
C)  equal to 120 kilograms. 
D)  less than the marginal product of labour.

Question 17

Table 6-9
  
-Refer to Table 6-9.Clock It To Me manufactures clock radios.The table above shows estimates of fixed cost per period and average variable cost for three possible plant sizes.
a.You are employed as the company's cost accountant and have been asked to prepare cost estimates for various output levels for each of the three possible plant sizes.Record your calculations in the table below.
Average Cost of Production
   b.For each of the three output levels,which plant size will generate the lowest average total cost of production?
c.Suppose the firm currently sells 8000 clock radios per period (using the optimal plant size for this output level).Now,however,it has just secured a long-term contract to supply 20 000 clock radios per period.In the short run,what is the average total cost of producing 20 000 clock radios? Provide a numerical value based on your answer in part a.
d.What happens to average total cost of production in the long run? Provide a numerical value based on your answer in part a.

Accepted Answer

a.
Average Cost of Production
 @#IMG-DLM& 
b.For a

Question 18

Table 6-5
  
-Refer to Table 6-5.Suzette's Fancy Packaging subcontracts with Sunshineland Pecans to box dried fruit and nuts for Suzette's mail order business.Suzette rents space for her factory for $400 a week in a nearby mall.She can hire temporary workers for $200 a week.Table 7-5 above shows her output and cost data.Use the table to answer questions a-e.
a.Complete the table.
b.In the last week of summer Suzette closes her business to go on a family vacation.What are her costs during that week?
c.In one week Suzette exactly breaks even.If her revenue for the week is $1200,how many boxes of fruit and nuts did she produce?
d.Judging from the marginal product of labour data,would you say that Suzette had to settle for increasingly unproductive workers? Explain your answer.
e.Suzette has received an order for 1500 boxes of nuts per week for the next 3 months.If she expects the trend in the marginal product of labour to continue in the same direction,what do you think she should do? Should she not commit until she can move to a larger space or should she just hire more workers? Explain your answer.

Accepted Answer

a.
 @#IMG-DLM& 
b.$400
c.840 boxes
d.Diminishing m

Question 19

What is the difference between 'diminishing marginal returns' and 'diseconomies of scale'?

Accepted Answer

A)  Both concepts explain why marginal cost increases after some point, but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. 
B)  Both concepts explain why average total cost increases after some point, but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. 
C)  Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases. 
D)  Diminishing marginal returns, which applies only in the long run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short run when at least one factor is fixed, explains why average total cost increases. 
A)  Both concepts explain why marginal cost increases after some point, but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. 
B)  Both concepts explain why average total cost increases after some point, but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. 
C)  Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases. 
D)  Diminishing marginal returns, which applies only in the long run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short run when at least one factor is fixed, explains why average total cost increases.

Question 20

Figure 6-2  
-Refer to Figure 6-2.Short run output is maximised at

Accepted Answer

A)  L1. 
B)  L2. 
C)  L3. 
D)  Insufficient information to determine 
A)  L1. 
B)  L2. 
C)  L3. 
D)  Insufficient information to determine

Describe the relationship between marginal cost and average total cost.

Which of the following statements is true?

What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?

If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23,what will happen to the average cost of production if the 15th unit is produced?

Which of the following is a factor of production that generally is fixed in the short run?

In the short run,marginal product of labour increases at first and then falls because

A downward-sloping marginal product of labour curve demonstrates the law of diminishing marginal returns.

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?

Minimum efficient scale is defined as the level of output at which

An important reason why diseconomies of scale arise is because firms may have to hire lower-skilled workers as firms expand.

Figure 6-3 Fancy Footwear manufactures shoes. Figure 6-3 shows Fancy Footwear's marginal product of labour and average product of labour curves in the short run. -Refer to Figure 6-3.For what quantity of labour does production display diminishing returns?

The marginal product of labour is calculated using the formula

Bill owns 'Bill's Home of Blues' a store that specialises in selling CDs and DVDs of blues musicians of the 1960s and 1970s.Bill took out a loan from his bank to pay for his store and its initial inventory.Bill pays the bank $900 per week for his loan.The $900 bank payment

In the long run,which of the following is true?

An avocado orchard employs 5 full-time workers.Currently,the average product of labour is 120 kilograms of avocados per day.The orchard hires a 6th full-time worker and his marginal product is 150 kilograms of avocados.The average product of the six workers will now be

What is the difference between 'diminishing marginal returns' and 'diseconomies of scale'?

Figure 6-2 -Refer to Figure 6-2.Short run output is maximised at

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

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Exam 6: Firms,the Stock Market,and Corporate Governance

Describe the relationship between marginal cost and average total cost.

Which of the following statements is true?

What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?

If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23,what will happen to the average cost of production if the 15th unit is produced?

Which of the following is a factor of production that generally is fixed in the short run?

In the short run,marginal product of labour increases at first and then falls because

A downward-sloping marginal product of labour curve demonstrates the law of diminishing marginal returns.

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?

Minimum efficient scale is defined as the level of output at which

An important reason why diseconomies of scale arise is because firms may have to hire lower-skilled workers as firms expand.

Figure 6-3 Fancy Footwear manufactures shoes. Figure 6-3 shows Fancy Footwear's marginal product of labour and average product of labour curves in the short run. -Refer to Figure 6-3.For what quantity of labour does production display diminishing returns?

The marginal product of labour is calculated using the formula

Bill owns 'Bill's Home of Blues' a store that specialises in selling CDs and DVDs of blues musicians of the 1960s and 1970s.Bill took out a loan from his bank to pay for his store and its initial inventory.Bill pays the bank $900 per week for his loan.The $900 bank payment

In the long run,which of the following is true?

An avocado orchard employs 5 full-time workers.Currently,the average product of labour is 120 kilograms of avocados per day.The orchard hires a 6th full-time worker and his marginal product is 150 kilograms of avocados.The average product of the six workers will now be

What is the difference between 'diminishing marginal returns' and 'diseconomies of scale'?

Figure 6-2 -Refer to Figure 6-2.Short run output is maximised at

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters