Question 1

The field of industrial organization addresses how the number of firms affects prices in a market and the efficiency of the market outcome.

Accepted Answer

A) True 
 B)False

Question 2

Constant returns to scale occur when the firm's long­run

Accepted Answer

A)  total costs are constant as output increases. 
B)  average total costs are constant as output increases. 
C)  average cost curve is falling as output increases. 
D)  average cost curve is rising as output increases. 
A)  total costs are constant as output increases. 
B)  average total costs are constant as output increases. 
C)  average cost curve is falling as output increases. 
D)  average cost curve is rising as output increases.

Question 3

The marginal-cost curve intersects the average-total-cost curve at the output level where average fixed costs are zero.

Accepted Answer

A) True 
 B)False

Question 4

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

Accepted Answer

A)  economies of scale. 
B)  constant returns to scale. 
C)  diseconomies of scale. 
D)  efficient scale. 
A)  economies of scale. 
B)  constant returns to scale. 
C)  diseconomies of scale. 
D)  efficient scale.

Question 5

Scenario 13-5
Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%.
-Refer to Scenario 13-5. Emily's explicit cost of capital is

Accepted Answer

A)  $2,000. 
B)  $4,000. 
C)  $12,000. 
D)  $14,000. 
A)  $2,000. 
B)  $4,000. 
C)  $12,000. 
D)  $14,000.

Question 6

Figure 13-3  
-Refer to Figure 13-3. Assuming that the firm depicted produces cookies, which of the statements below is most consistent with the shape of the total cost curve?

Accepted Answer

A)  Producing an additional cookie is always more costly than producing the previous cookie. 
B)  Total production of cookies decreases with additional units of input. 
C)  Producing additional cookies is equally costly, regardless of how many cookies are already being produced. 
D)  Producing additional cookies becomes increasingly costly only when the number of cookies already being produced is large. 
A)  Producing an additional cookie is always more costly than producing the previous cookie. 
B)  Total production of cookies decreases with additional units of input. 
C)  Producing additional cookies is equally costly, regardless of how many cookies are already being produced. 
D)  Producing additional cookies becomes increasingly costly only when the number of cookies already being produced is large.

Question 7

Scenario 13-4
Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%.
-Refer to Scenario 13-4. Abdul's implicit cost of capital is

Accepted Answer

A)  $8,000. 
B)  $4,000. 
C)  $2,000. 
D)  $1,000. 
A)  $8,000. 
B)  $4,000. 
C)  $2,000. 
D)  $1,000.

Question 8

When a firm is experiencing diseconomies of scale, long-run

Accepted Answer

A)  average total cost is minimized. 
B)  average total cost is greater than long-run marginal cost. 
C)  average total cost is less than long-run marginal cost. 
D)  marginal cost is minimized. 
A)  average total cost is minimized. 
B)  average total cost is greater than long-run marginal cost. 
C)  average total cost is less than long-run marginal cost. 
D)  marginal cost is minimized.

Question 9

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

Accepted Answer

A)  output is not variable. 
B)  the number of workers used to produce the firm's product is fixed. 
C)  the size of the factory is fixed. 
D)  there are no fixed costs. 
A)  output is not variable. 
B)  the number of workers used to produce the firm's product is fixed. 
C)  the size of the factory is fixed. 
D)  there are no fixed costs.

Question 10

Accountants keep track of the money that flows into and out of firms.

Accepted Answer

A) True 
 B)False

Question 11

Industrial organization is the study of

Accepted Answer

A)  how labor unions organize workers in industries. 
B)  which managers are the most successful. 
C)  how industries organize for political advantage. 
D)  how firms' decisions regarding prices and quantities depend on the market conditions they face. 
A)  how labor unions organize workers in industries. 
B)  which managers are the most successful. 
C)  how industries organize for political advantage. 
D)  how firms' decisions regarding prices and quantities depend on the market conditions they face.

Question 12

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6,Q=147) and (L=7,Q=184). The marginal product of the seventh worker is

Accepted Answer

A)  25 units of output. 
B)  27 units of output. 
C)  37 units of output. 
D)  184 units of output. 
A)  25 units of output. 
B)  27 units of output. 
C)  37 units of output. 
D)  184 units of output.

Question 13

Describe the relationship between average variable cost and average total cost. How are the general shapes of the AVC and ATC curves related?

Accepted Answer

ATC = AVC + AFC, so the vertical distanc

Question 14

Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles.  
-Refer to Figure 13-9. At levels of output between M and N, the firm experiences

Accepted Answer

A)  economies of scale. 
B)  diseconomies of scale. 
C)  constant returns to scale. 
D)  both the benefits of specialization and diminishing marginal productivity. 
A)  economies of scale. 
B)  diseconomies of scale. 
C)  constant returns to scale. 
D)  both the benefits of specialization and diminishing marginal productivity.

Question 15

In the long run,

Accepted Answer

A)  inputs that were fixed in the short run remain fixed. 
B)  inputs that were fixed in the short run become variable. 
C)  inputs that were variable in the short run become fixed. 
D)  variable inputs are rarely used. 
A)  inputs that were fixed in the short run remain fixed. 
B)  inputs that were fixed in the short run become variable. 
C)  inputs that were variable in the short run become fixed. 
D)  variable inputs are rarely used.

Question 16

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's costs.

Accepted Answer

A)  Tyler says his costs are $25,900, and Greg says his costs are $66,500. 
B)  Tyler says his costs are $25,000, and Greg says his costs are $65,000. 
C)  Tyler says his costs are $66,500, and Greg says his costs are $66,500. 
D)  Tyler says his costs are $75,000, and Greg says his costs are $41,500. 
A)  Tyler says his costs are $25,900, and Greg says his costs are $66,500. 
B)  Tyler says his costs are $25,000, and Greg says his costs are $65,000. 
C)  Tyler says his costs are $66,500, and Greg says his costs are $66,500. 
D)  Tyler says his costs are $75,000, and Greg says his costs are $41,500.

Question 17

Riva crafts and sells hard cider as a part-time job. She can bottle and sell four cases in a week. She is considering hiring her friend Atul to help her. Together, Riva and Atul can bottle and sell seven cases per week. What is Atul's marginal product?

Accepted Answer

A)  2 cases 
B)  3 cases 
C)  5 cases 
D)  7 cases 
A)  2 cases 
B)  3 cases 
C)  5 cases 
D)  7 cases

Question 18

Table 13-19  
-Refer to Table 13-19. What is the shape of the average-variable-cost curve?

Accepted Answer

AVC = VC/Q, where VC is graphed on the v

Question 19

Total revenue minus only explicit costs is called

Accepted Answer

A)  accounting profit. 
B)  economic profit. 
C)  average total cost. 
D)  implicit profit. 
A)  accounting profit. 
B)  economic profit. 
C)  average total cost. 
D)  implicit profit.

Question 20

Economists normally assume that the goal of a firm is to earn

Accepted Answer

A)  (i) and (ii) only 
B)  (i) and (iii) only 
C)  (ii) and (iii) only 
D)  (i), (ii), and (iii) 
A)  (i) and (ii) only 
B)  (i) and (iii) only 
C)  (ii) and (iii) only 
D)  (i), (ii), and (iii)

Exam 13: The Costs of Production

The field of industrial organization addresses how the number of firms affects prices in a market and the efficiency of the market outcome.

Constant returns to scale occur when the firm's long­run

The marginal-cost curve intersects the average-total-cost curve at the output level where average fixed costs are zero.

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

Figure 13-3 -Refer to Figure 13-3. Assuming that the firm depicted produces cookies, which of the statements below is most consistent with the shape of the total cost curve?

When a firm is experiencing diseconomies of scale, long-run

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

Accountants keep track of the money that flows into and out of firms.

Industrial organization is the study of

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6,Q=147) and (L=7,Q=184). The marginal product of the seventh worker is

Describe the relationship between average variable cost and average total cost. How are the general shapes of the AVC and ATC curves related?

Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. -Refer to Figure 13-9. At levels of output between M and N, the firm experiences

In the long run,

Riva crafts and sells hard cider as a part-time job. She can bottle and sell four cases in a week. She is considering hiring her friend Atul to help her. Together, Riva and Atul can bottle and sell seven cases per week. What is Atul's marginal product?

Table 13-19 -Refer to Table 13-19. What is the shape of the average-variable-cost curve?

Total revenue minus only explicit costs is called

Economists normally assume that the goal of a firm is to earn

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Constant returns to scale occur when the firm's longrun