Question 1

A firm pays $50,000 for a machine that is used in production for one year,after which it is sold for $40,000 to another firm.The $10,000 difference is

Accepted Answer

A)  an explicit cost of production. 
B)  economic depreciation, an implicit cost of production. 
C)  normal profit. 
D)  not counted as an economic cost of production. 
E)  not an opportunity cost because it is not actually paid.

Question 2

The main source of economies of scale is

Accepted Answer

A)  reductions in the price of factors of production. 
B)  greater specialization of both labor and capital. 
C)  increasing average costs. 
D)  decreasing marginal product. 
E)  the ability to hire less labor.

Question 3

Which of the following costs can be positive when output is zero?

Accepted Answer

A)  average variable cost 
B)  total variable cost 
C)  marginal cost 
D)  total fixed cost 
E)  None of the above because when output is zero there are no costs.

Question 4

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 5

The change in cost that results from a one-unit increase in output is called the

Accepted Answer

A)  average fixed cost. 
B)  per-unit variable cost. 
C)  per-unit total cost. 
D)  marginal cost. 
E)  average cost change.

Question 6

If Melissa owns a software company that incurs no fixed costs,then

Accepted Answer

A)  her total cost equals her total variable cost. 
B)  she will earn an economic profit. 
C)  her total variable cost is less than her total cost. 
D)  her total cost equals zero. 
E)  her marginal cost must equal zero.

Question 7

Average total cost is equal to

Accepted Answer

A)  average fixed cost + average variable cost. 
B)  total cost ÷ quantity. 
C)  the change in total cost when output changes by one unit. 
D)  Answers A and B are correct. 
E)  Answers A and C are correct.

Question 8

The average product curve

Accepted Answer

A)  initially falls then rises. 
B)  rises as average variable cost increases. 
C)  initially rises and then falls. 
D)  shows how productivity changes as output changes. 
E)  intersects the marginal cost curve when the average product curve is at its maximum.

Question 9

From a firm's viewpoint,opportunity cost is the

Accepted Answer

A)  best alternative use customers can find for the firm's output. 
B)  cost the firm must pay for the factors of production it employs to attract them from their best alternative use. 
C)  accounting cost of resources. 
D)  price a firm can charge for its output. 
E)  cost of acquiring the opportunity to sell to its customers.

Question 10

When plotted against the total output,what does the total fixed cost curve look like?

Accepted Answer

The answer of When plotted against the total output,what does...

Question 11

An insurance agent rents a building and has a three-year lease.An increase in the rent for the building increases the agent's

Accepted Answer

A)  total cost and average variable cost. 
B)  total variable cost and average variable cost. 
C)  total fixed cost and total variable cost. 
D)  total fixed cost and average fixed cost. 
E)  total variable cost and total cost.

Question 12

Economic depreciation is the

Accepted Answer

A)  fall in value of the firm's capital, calculating using IRS rules. 
B)  opportunity cost of owning and using the firm's capital, measured as the change in market value. 
C)  decrease in the value of finished goods and services that are held in inventories prior to being sold. 
D)  term given to a fall in a company's stock price. 
E)  name given to how accountants calculate the depreciation of the company's capital.

Question 13

The law of decreasing returns applies to

Accepted Answer

A)  the long-run average cost curve. 
B)  average total cost. 
C)  diseconomies of scale. 
D)  changes in a variable input with a given quantity of fixed inputs. 
E)  changes in a fixed input with a given quantity of variable inputs.

Question 14

The relationship between the MP and MC curves is

Accepted Answer

A)  over the range where the MP curve has a negative slope, the MC curve also has a negative slope. 
B)  there is no predictable relationship. 
C)  over the range where the MC curve has a positive slope, the MP curve also has a positive slope. 
D)  over the range where the MP curve has a positive slope, the MC curve has a negative slope. 
E)  that the MP is not defined when the MC curve has a negative slope.

Question 15

The return to entrepreneurship is known as

Accepted Answer

A)  economic profit. 
B)  normal profit. 
C)  opportunity revenue. 
D)  normal revenue. 
E)  explicit profit.

Question 16

-Anna owns a dog grooming salon in Brunswick,Georgia.The above table has Anna's total product schedule.Anna pays each worker $300 per week and she pays rent of $600 a week for her salon.These are her only costs.When Anna has a staff of 2 workers,her average fixed cost equals

Accepted Answer

A)  $600. 
B)  $6.00. 
C)  $7.50. 
D)  $10.00. 
E)  $2,400.

Question 17

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 18

Professor Rush decided to quit teaching economics and opens a shoe store out at the mall.He gave up an annual income of $50,000 to open the store.A year after opening the shoe store,the total revenue for the year was $200,000.Rush's expenses were $30,000 for labor,rent was $18,000,and utilities were $1,200.He also had to purchase new shoes from manufacturers,at a cost of $60,000,which was financed by cashing in his savings of $60,000 that had been in a bank earning 8 percent per year.The normal profit from operating a shoe store in the mall is $20,000.Determine Professor Rush's explicit costs,implicit costs,and economic profit.

Accepted Answer

The answer of Professor Rush decided to quit teaching economics...

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

The law of decreasing returns states that as a firm uses more of a

Accepted Answer

A)  fixed input, with a given quantity of variable inputs, the marginal product of the fixed input eventually decreases. 
B)  variable input, total output will increase indefinitely. 
C)  variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases. 
D)  variable input, output will begin to fall immediately. 
E)  fixed input and a variable input, the marginal product of the fixed input and the marginal product of the variable input both decrease.

Exam 14: Production and Cost