Question 1

Jay set up his hot dog stand near the business district.His total variable cost includes the

Accepted Answer

A)  annual insurance for the hot dog stand. 
B)  cost of buying the hot dog stand. 
C)  cost of the hot dogs and condiments. 
D)  interest he pays on the funds he borrowed to pay for advertising. 
E)  revenue he gets when he sells his first hot dog each day.

Question 2

When Ford hires Ernst and Young Consulting to help Ford redesign its marketing,Ford's payment to Ernst and Young is classified as

Accepted Answer

A)  an explicit cost. 
B)  depreciation. 
C)  an implicit cost. 
D)  normal profit. 
E)  economic profit.

Question 3

Lauren runs a chili restaurant in San Francisco.Her total revenue last year equaled $111,000.The rent on her restaurant totaled $48,000.Her labor costs totaled $43,000.Her materials,food and other variable costs totaled $19,000.To Lauren's accountant,Lauren

Accepted Answer

A)  incurred a loss of $1,000. 
B)  earned a profit of $1,000. 
C)  incurred a loss of $111,000. 
D)  earned a profit of $111,000. 
E)  had a total cost equal to $91,000.

Question 4

Decreasing marginal returns

Accepted Answer

A)  can be avoided if a firm watches costs. 
B)  affect all firms, but at different production levels. 
C)  affect all firms at the same level of production. 
D)  disappear when the firm produces a large enough level of output. 
E)  mean that the average product of labor starts as a negative number and then becomes positive.

Question 5

The average product is the greatest in the short run when the

Accepted Answer

A)  total product is maximized. 
B)  marginal product is equal to zero. 
C)  marginal product is maximized. 
D)  marginal product is equal to the average product. 
E)  marginal product is greater than the average product.

Question 6

The long-run average cost curve is U-shaped because of which of the following?

Accepted Answer

A)  decreasing marginal returns as more labor is hired 
B)  constant fixed costs as output is increased 
C)  economies and diseconomies of scale 
D)  increasing marginal returns as more labor is hired 
E)  decreasing average fixed costs as output is increased

Question 7

Which of the following is a list of fixed inputs for a hospital?

Accepted Answer

A)  bandages, casts, and other materials 
B)  antibiotics, pain medication, and other prescription drugs 
C)  the emergency room, intensive care unit, and other facilities 
D)  the nurses, receptionists, and other employees 
E)  the lobby, the doctors, and the electricity it uses

Question 8

The average fixed cost curve

Accepted Answer

A)  is always positively sloped. 
B)  is U-shaped. 
C)  has an upside-down U shape. 
D)  is always negatively sloped. 
E)  is horizontal.

Question 9

Which of the following is correct?

Accepted Answer

A)  The short run for a firm can be longer than the long run for the same firm. 
B)  The short run is the same for all firms. 
C)  The long run is the time frame in which the quantities of all resources can be varied. 
D)  The long run is the time frame in which all resources are fixed. 
E)  The long run does not exist for some firms.

Question 10

Which of the following is true?

Accepted Answer

A)  Profit as calculated by accountants and economic profit are not necessarily equal. 
B)  Profit as calculated by accountants is always smaller than economic profit. 
C)  Economic profit ignores implicit costs. 
D)  The Internal Revenue Service taxes the firm's economic profit but not its normal profit. 
E)  The Internal Revenue Service taxes the firm's normal profit but not its economic profit.

Question 11

Economies of scale can occur as a result of which of the following?

Accepted Answer

A)  increasing marginal returns as the firm increases its size 
B)  lower fixed cost as the firm increases its size 
C)  management difficulties as the firm increases its size 
D)  greater specialization of labor and capital as the firm increases its size 
E)  increased total cost when the firm increases its size

Question 12

Consider a Wal-Mart supercenter and a 7-Eleven store.In the long run,

Accepted Answer

A)  Wal-Mart or 7-Eleven may have economies of scale depending on how many customers are served. 
B)  Wal-Mart will definitely have lower average costs because supercenters serve many more customers. 
C)  The 7-Eleven store will definitely have lower average costs because their small stores are cheaper to build. 
D)  Wal-Mart's average total cost will decline faster than the 7-Eleven store and experience diseconomies of scale. 
E)  The 7-Eleven store's average total cost will be lower than Wal-Mart's and always experience economies of scale.

Question 13

Which of the following are correct statements about implicit and explicit costs?
i.Normal profit is an implicit cost.
ii.Economic depreciation is an explicit cost.
iii.Wages are an explicit cost.

Accepted Answer

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

Question 14

What does the long-run average cost curve show?

Accepted Answer

A)  the interaction between average fixed cost and marginal cost 
B)  the lowest average cost to produce each output level in the long run 
C)  the distinction between long-run fixed and long-run variable costs 
D)  the lowest average marginal cost of producing each output level at any time. 
E)  Answers A, B, and C are correct.

Question 15

As output increases,average total cost decreases

Accepted Answer

A)  constantly. 
B)  as the average product of labor decreases. 
C)  initially and then starts to increase. 
D)  in the long run and the short run. 
E)  as long as average fixed cost decreases.

Question 16

The long run average cost curve

Accepted Answer

A)  is the sum of a firm's short run average cost curves. 
B)  shows the lowest average cost facing a firm as it increases output changing both its plant and labor force. 
C)  initially rises when output increases and then falls when output increases. 
D)  always falls as output increases. 
E)  always rises as output increases.

Question 17

The short-run average total cost,average variable cost,and marginal cost curves are all U-shaped because of
i.constant total fixed cost.
ii.increasing and then decreasing marginal returns as more labor is hired.
iii.economies and diseconomies of scale as the plant size increases.

Accepted Answer

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

Question 18

What resources can a firm change in the short run? In the long run?

Accepted Answer

The answer of What resources can a firm change in...

Question 19

Scott owns a law-enforcement training operation in Boise,Idaho.He employs three trainers.The last trainer Scott hired increased Scott's total cost by $466 per week even though the trainer brought in only one new client.Hence Scott's

Accepted Answer

A)  total variable cost equals $466. 
B)  marginal cost of the last client equals $466. 
C)  marginal cost of the last worker equals $233. 
D)  total variable cost equals $233. 
E)  total fixed cost of the last client equals $466.

Question 20

Jake is a corn farmer in Nebraska.He rents his land on a long-term lease for $250,000 a year.He pays his farm hands $128,000 a year.Is his rent a fixed cost or a variable cost? Are the wages he pays his workers a fixed cost or a variable cost? Briefly explain your answers.

Accepted Answer

The answer of Jake is a corn farmer in Nebraska.He...

Exam 14: Production and Cost